KUALA LUMPUR: Mercury Securities has accorded a target price of 20 sen for steel pole maker Mestron Holdings Bhd
which is offering its shares at 16 sen per share as it seeks to list on the ACE Market of Bursa Malaysia.
It said on Friday at 16 sen, it valued Mestron at 13.6 times price-to-earnings (PE) based on FY18A core EPS of 1.2 cents, and representing price-to-book of 2.2 times based on pro-forma consolidated net asset per share upon listing.
“We have a subscribe recommendation with a target price of RM0.20 derived based on 13 times PE of our estimated FY20E EPS of 1.5 sen. The target price represents a potential return of 22.0% over the IPO price,” it said.
Mestron core activities are the manufacturing of steel poles which include standard street light poles, decorative light poles; and specialty poles and also trading of outdoor lighting products.
Mecury Securities said the investment merits were an established track record, more than 15 years of operating history; experienced management and technical team with in-depth technical expertise, and comprehensive range of steel pole products.
The research house said Mestron’s prospects depends on on-going and upcoming infrastructure and social amenities developments.
Although this construction subsector adversely affected in 2018 by uncertainties arising from the cancellation, postponement and cost cutting measures of several major infrastructure developments post the 14th General Election 2018, infrastructure development in the country is still expected to continue in the coming years.
In April, the government announced the East Coast Rail Line will resume and it is expected to be completed by 2026.
Mercury Securities pointed out Mestron intends to grow its business organically by capitalising on the growing demand for specialty poles such as high mast pole and telco monopole.
The company also wants to increase the market share in the street light pole in Malaysia.
Mestron intends to expand its presence in export market such as Brunei, New Zealand and Sri Lanka, intend to appoint master distributors in these countries.
The company is in talks with existing customers in Brunei and New Zealand for a master distributorship arrangement and expects to finalise appointments before end of 2019.
Mestron plans to raise RM25.28mil from the isting exercise. It will use RM13mil or 51.4% of the proceeds from the initial public offering (IPO) to expand its main manufacturing plant and purchase machinery.
It will also use RM5.18mil (20.5%) to purchase raw materials such as steel plates and steel pipes; RM4mil (15.8%) to repay bank borrowings and the remaining RM3.10mil (12.3%) to defray listing expenses for the IPO.
Limited time offer:
Just RM5 per month.
