Mestron banks on three sectors for growth

Loon: Our export markets of Singapore and Australia, which have high standard requirements, stand as our testament to our product quality.

PETALING JAYA: The oil and gas, telecommunications and infrastructure sectors are expected to be growth drivers for steel pole manufacturer Mestron Holdings Bhd, particularly for its specialty pole business segment.

This will be on the back of the group’s working ties with engineering, procurement and construction (EPC) firms, 5G network convergence, as well as the nationwide conversion of conventional street lamps to LED lamps.

To be listed on the Ace Market of Bursa Malaysia on June 18, Mestron aims to grow its specialty pole segment’s revenue contribution from the current one-third to 50% in two years’ time.

Essentially, Mestron manufactures standard lighting poles, decorative and specialty poles.

It is also involved in the trading of outdoor lighting products.

Mestron executive director Gary Loon told StarBizWeek that the group is shifting its strategy to focus on the specialty pole segment due to the higher profit margins.

“We have strong technical knowledge and work closely with contractors, consulting engineers and highway concession owners by being involved in the preliminary design stages.

“Our customer base comprises 300 active mechanical and electrical contractors.

“For the past few years, we have been working with a Korean EPC firm, which has secured major oil and gas projects globally.

“Some of these projects that we have completed in the last two years are in Algeria, Bahrain, Iraq and Melaka Oil Refinery,” he said.

It is noteworthy that Mestron also works with industrial lighting manufacturer Success Transformer Corp Bhd and telecommunications network services provider OCK Group Bhd to produce street lamps and telco poles.

Mestron has a market share of 19.8% in Malaysia, which leaves plenty of room for growth.

“As for the standard street light pole segment, we have secured several packages of work from Damansara-Shah Alam Elevated Expressway (DASH), East Klang Valley Expressway (EKVE) and Pan Borneo highways, as well as portions of West Coast Expressway (WCE), and we expect more infrastructure packages to be delivered going forward,” said Loon.

The export market is presently a relatively small segment for the group, as 92.6% of its revenue in 2018 was derived locally.

Mestron has recently established new export markets in New Zealand, Sri Lanka and Brunei, and the group is on the lookout for partners who can be active promoters of Mestron’s products in the respective countries, instead of passive buyers.

“Our export markets of Singapore and Australia, which have high standard requirements, stand as our testament to our product quality,” said Loon.

At an initial public offering (IPO) price of 16 sen per share, Mestron expects to raise RM25.28mil.

Upon listing, Mestron will have a market capitalisation of RM126.4mil.

Bulk of the initial public offering (IPO) proceeds of 51.4% or RM13mil will be used to expand Mestron’s manufacturing facility and purchase machinery.

Currently, the group has a production capacity of 5,600 tonnes per annum and this will be increased to 11,400 tonnes per annum, which will future proof Mestron for the next five years.

In addition, RM5.18mil will be earmarked for the purchase of raw materials such as steel plates and steel pipes while RM4mil is allocated for the repayment of bank borrowings.

The remaining RM3.1mil shall be for the defrayment of listing expenses.

To date, Mestron has a gearing ratio of 0.5 times, which will be reduced to 0.23 times, post-IPO.

For the financial year ended December 31, 2018, Mestron registered a net profit growth of 9% to RM9.31mil, as compared to the previous financial year.

This was on the back of a revenue of RM63.68mil.

The group has gross and net profit margins of an estimated 30% and 15%, respectively.

Mestron purchases its raw materials in Ringgit, from local steel stockists.

Hence, the group’s foreign exchange exposure is minimal.

Mestron does not maintain an orderbook as revenue of generated as and when the products are delivered to customers.

As of April 30, 2019, the group’s outstanding and unfulfilled purchase orders amount to RM31.55mil, which will keep Mestron busy for the year.

The other listed peer is Lysaght Galvanized Steel Bhd, which currently trades at a price-earnings ratio of 13 times, as compared to Mestron’s 13.6 times.
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