PETALING JAYA: The attractive expansion plans and strong design and development (D&D) capabilities of Synergy House Bhd have prompted Mercury Securities to set a fair value of 52 sen for its impending ACE Market listing.
The fair value represents a potential return of 20.9% over the initial public offering (IPO) price of 43 sen for the furniture design and development company, which is due to be listed on June 1.
It said the fair value was based on FY2024F earnings per share of 5.8 sen and a price-to-earnings (PE) of 9x, which is in line with its peers’ average.
In a note, Mercury said Synergy was “well-positioned” to leverage on the growth of the global furniture consumption which is forecasted by Smith Zander to grow at a compound annual growth rate (CAGR) of 2.88% from US$590.01 billion (RM2.68 trillion) in 2021 to US$642.46 billion (RM2.92 trillion) in 2024.
The bulk of Synergy House’s furniture is exported overseas – mainly to the United States, United Kingdom and United Arab Emirates – representing 94.66% of its total revenue as of the financial year ended Dec 31, 2022.
Furniture manufactured in Malaysia is exported globally to 174 countries. In 2021, Malaysia was the 12th largest furniture-exporting country globally, accounting for 1.46% of total global furniture exports of US$206.85 billion (RM938.54 billion), according to Smith Zander.
The IPO will issue 130 million new shares. Synergy House expects to earn RM34.4 million from the exercise, with proceeds used for purchasing inventories (29.07%), e-commerce fulfilment centres (4.36%), advertising and promotion (2.91%), repayment of borrowings (29.07%), working capital (22.38%) and listing expenses (12.21%).
Post-listing, the group is expected to have a market capitalisation of RM215 million, with its major shareholder SH Holdings owning a 74% stake.
Kenanga Investment Bank Bhd is the principal adviser, sponsor, underwriter and placement agent for the IPO exercise.
Light asset model, strong D&D capabilities
Mercury Securities noted the company outsources its manufacturing process of its home furniture to third party manufacturers. This is a business strategy used to good effect by many top multinationals.
“This allows its resources to be focused on D&D, hence the company is able to provide a variety of offerings and designs across bedroom, dining, and living room furniture,” it added.
During the 2019 to 2022 period, Synergy launched an impressive 2,745 new designs of home furniture. It plans to expand its offerings to include bathroom and kitchen furniture going forward. This gives the company a strategic edge over the typical furniture maker.
An investment holding company, Synergy House will wholly own three companies following the IPO. Namely, SH Furniture, SK Furniture Industries and SH International.
Interestingly, the group does not have a CEO or managing director. Instead, it is managed by non-independent executive directors Tan Eu Tah and Teh Yee Luen along with a key senior management team who has more than 20 years of experience in the furniture industry.
In a recent statement, Tan said the IPO will enable the company to fuel its future growth and expansion plans by tapping into the equity capital market and provide financial flexibility to pursue growth opportunities.
Leveraging on e-commerce platforms
Going forward, the group intends to expand its business-to-consumer (B2C) segment by expanding its customer reach via listing and selling its products on more e-commerce platforms.
“We intend to continue to grow our B2C segment by utilising a portion of the IPO proceeds to purchase inventories for our B2C segment and by carrying out advertising and promotion initiatives on third-party e-commerce platforms,” Teh said.
The group has seen encouraging growth from its B2C segment whereby its B2C sales have increased from RM1.99 million in FY2019 to RM49.63 million in FY2022 at a CAGR of 192.17%.
It targets new markets and plans to establish new warehouses in Muar, Johor within 2023 and Port Klang within 2027 as its e-commerce fulfilment centres.
The company was able to achieve a three-year revenue CAGR of 20.3% and a three-year profit after tax CAGR of 15.05% from FY2019 to FY2022.
Its FY2022 profit after tax was RM16.6 million compared to RM14.4 million a year earlier, while revenue in FY2022 stood at RM194.1 million from RM184.3 million the previous year.
Mercury has forecast the company’s profit after tax and revenue to grow to RM34.2 million and RM248.7 million respectively for FY2023.