3REN Berhad Launches IPO, Subscription Opens on October 9th

This IPO is issuing 110,000,000 new ordinary shares as follows:

– 32,500,000 new shares available for application by the Malaysian public.

– 30,000,000 new shares available for application by eligible directors, employees, and persons who have contributed to the company's success.

– 3,800,000 new shares by way of private placement to Bumiputera investors approved by the Ministry of Investment, Trade, and Industry.

– 43,700,000 new shares by way of private placement to selected investors.

Additionally, there will be a separate private placement of 45,000,000 existing shares to Bumiputera investors approved by the Ministry of Investment, Trade, and Industry.

3REN Berhad, incorporated on 5th April 2021, is a Malaysia-based investment holding company. The company operates through its wholly-owned subsidiaries, Sophic Automation, Sophic MSC, and Pinkypye, providing a suite of automation solutions and engineering services. The company's primary areas of expertise include product engineering services, engineering support services for IC assembly and testing, design and development of digitalized solutions, and design and development of automated equipment.

The company's history dates back to the incorporation of Sophic Automation in November 2007. Over the years, 3REN has grown both organically and through strategic acquisitions. The company has completed several key acquisitions, including Sophic MSC and Pinkypye, and has secured significant projects in automation and digitalization, contributing to its robust growth.

Underpinning 3REN Berhad's operations is a robust business model centered on innovation, customer-centric solutions, and operational excellence. With a significant presence in Malaysia and a global outreach that includes countries like Singapore, the USA, China, Vietnam, and others, the company ensures a diverse customer base and a robust revenue stream.

At the core of 3REN Berhad's business is a commitment to delivering value to its customers through high-quality services and solutions. The company has seen substantial revenue growth, with a Compound Annual Growth Rate (CAGR) of 14.62% from RM63.02 million in FYE 2020 to RM94.89 million in FYE 2023. This growth is primarily driven by its product engineering services and engineering support services for IC assembly and testing.

The company's business model is summarized as follows:

3Ren Berhad's financial performance over the periods under review illustrates a dynamic growth pattern with revenues peaking at RM103.60 million in FYE 2022, followed by a slight adjustment to RM94.89 million in FYE 2023. Revenue for the first half of the year ending 30 June 2024 (FPE 2024) was recorded at RM45.52 million, indicating a sustained growth trajectory.

Profitability-wise, the company's Gross Profit (GP) closely mirrored the revenue trend, reaching a high of RM27.50 million in FYE 2023, a significant leap from previous periods. This underscores 3Ren Berhad's proficiency in converting sales into profits. The Profit Before Tax (PBT) and Profit After Tax (PAT) generally followed an upward trajectory over the years, albeit with some fluctuations.

The Gross Profit Margin (GPM), which is a key financial metric, experienced a slight dip from 30.00% in FYE 2020 to 23.35% in FYE 2022, before rebounding to 28.98% in FYE 2023. This trend was mirrored in the PBT margin and PAT margin, reflecting the company's financial health. The variations can be attributed to operational costs, market dynamics, and strategic decisions.

The Basic EPS and Diluted EPS have exhibited a downward trend from FYE 2021 to FPE 2024, which could be a concern for investors as it suggests a decrease in the profit allocated per share.

In FYE 2022, the company observed a substantial increase in revenue of RM29.43 million or 39.69%, primarily due to a surge in sales from the engineering support services for IC assembly and testing segment, which increased by RM30.72 million or 361.19%. This was largely driven by an influx of orders from the Intel group of companies. To meet this increased demand, the company expanded its workforce, leading to a significant rise in labor costs of RM33.38 million or 132.67% for that financial year. Despite the GP for this segment increasing by RM0.39 million or 41.59% due to higher revenue, the GP margin decreased from 10.97% in FYE 2021 to 3.37% in FYE 2022, a consequence of the escalated labor costs. However, both GP and GP margin for this segment showed signs of recovery in FYE 2023 and FPE 2024, as the company implemented cost-optimization measures aimed at enhancing overall operational efficiency and competitiveness.

The 3REN Berhad Group operates within the dynamic sectors of the semiconductor and electronics industry, specifically focusing on integrated circuit (IC) design, assembly, and testing, as well as the provision of automated manufacturing and digital solutions. These areas are integral to the technology value chain, enabling the development and operational efficiency of various electronic products.

The semiconductor and electronics industries operate within a cyclical market, subject to influences such as market demand, supply, and macroeconomic factors. Despite these cyclical tendencies, the global semiconductor and electronics industries have experienced growth, expanding from USD291.6 billion in 2012 to USD526.8 billion in 2023, reflecting a Compound Annual Growth Rate (CAGR) of 5.5% during this period. This growth has been driven by advancements in technology such as 5G, IoT, AI, and big data analytics, which have created a surge in demand for high-performance ICs.

The IC design, assembly, and testing segments are critical components of the semiconductor industry. These segments involve the conceptualization, fabrication, and validation of ICs to ensure they meet the required specifications and performance standards. The growing complexity of ICs and the need for rapid product innovation have led to a trend where companies outsource these segments to specialized service providers. This outsourcing allows companies to focus on their core competencies, fostering innovation and accelerating time-to-market for new products. PROVIDENCE forecasts the global IC assembly and testing services industry is expected to grow at a CAGR of 4.5% to reach USD$37 billion between 2024 and 2026.

The advent of Industry 4.0 has brought about a significant shift towards automated manufacturing and digital solutions. These solutions leverage the Internet of Things (IoT), AI, and machine learning to create smart factories that enhance operational efficiency, quality control, and reduce costs. The implementation of such solutions allows for real-time monitoring and data exchange between devices, enabling predictive maintenance and improved decision-making processes. PROVIDENCE estimates that the global automated manufacturing and digital solutions industry is expected to grow at a CAGR of 8.7% to reach USD448.6 billion between 2024 and 2026.

Looking forward, the industry is poised for growth, driven by advancements in 5G, the Internet of Things (IoT), artificial intelligence (AI), and big data analytics. These technologies are anticipated to fuel the demand for sophisticated semiconductor chips and advanced manufacturing processes, thereby benefitting companies like 3REN Berhad that are well-positioned to service these needs.

The 3REN Berhad Group anticipates utilizing the gross proceeds from its Public Issue, amounting to RM30.80 million, in the following manner:

1. Setting up new Delivery Centres: RM7,200,000 (23.38%) is designated for the establishment of two new Delivery Centres over 36 months, with an estimated total cost of RM7.70 million, of which RM7.20 million will be funded from the Public Issue proceeds, and the remaining RM0.50 million will be financed through internal sources.

2. R&D Expenditure: RM5,100,000 (16.56%) will be channeled into R&D activities, including the setup of an innovation centre, hiring of R&D personnel, and procurement of IT software, hardware, and equipment, all aimed at enhancing the Company's innovation capabilities.

3. Establishment of a new Singapore office: RM3,000,000 (9.74%) is earmarked for the establishment of a marketing and sales office in Singapore by the first half of 2025, with the total cost to be covered entirely by the Public Issue proceeds.

4. Repayment of bank borrowings: RM7,600,000 (24.67%) is intended to partially repay the Company's total bank borrowings of approximately RM11.25 million, thereby reducing financial leverage.

5. Working capital requirements: RM3,900,000 (12.66%) is allocated to bolster the Company's working capital to cater to the projected business growth.

6. Estimated listing expenses: RM4,000,000 (12.99%) will cover all expenses related to the listing process, including advisory and professional fees, underwriting commission, brokerage fees, placement fees, and miscellaneous expenses.