[IPO IPO] BWYS Group | A “combination” of multiple steel stocks?

After the market correction last week, our stock market saw another 914 falling stocks yesterday. At the same time, there was also a drop in trading volume. It seems that this “correction” is a bit too big.

However, we can still notice that recent IPOs have performed very well. Oversubscribing is generally more than 50 times (depending on the industry, of course), so the moderator also wanted to share BWYS Group Berhad (BWYS, 0313), a company that few people mentioned, so that everyone can learn more about them.

We also mentioned in the title that BWYS is a steel stock, and the company's business can be divided into three categories; the first category is products related to sheet metal manufacturing (“Sheet Metal”), the second is the sale and rental of scaffolding (“scaffoldings”), that is, the “shelves” we see outside of some established industries, and the last one is trading steel-related (“trading”) products.

In FY2023, sheet metal manufacturing accounted for 73.0% of revenue, supply scaffoldings accounted for 24.9%, and finally, trading accounted for a small amount of 2.1% of revenue.

So what exactly does the “sheet metal manufacturing” we've always mentioned do?

Briefly, BWYS mainly manufactures coiled steel roof panels (“Roofing Sheets”) and trusses (first read héng, “Trusses”). The former can be used for residential, industrial, and commercial tile roof construction, while the latter mainly focuses on residential tile roof construction; BWYS's business is also similar to ASTINO (7162).

Although from an outsider's point of view, this industry may seem easy to enter, but in reality, buying coil steel (whether hot-rolled steel or cold-rolled steel) requires a large enough production line; furthermore, if you want to make roofing-related products, you often need to have surface treatment (“Surface Treatment”) facilities, such as powder coating (“Powder Coating”), etc., so the initial investment is not small.

Also, it's not easy for builders to accept your products, so this industry may seem simple, but in fact, the requirements for “money” are very high.

In addition to coiled steel products used in roofing, BWYS's sheet metal business also includes industrial shelf systems (“racking systems”) and relatively common, low-threshold welded pipe (“Racking Pipes”) products; and the company's purpose of diversifying products is also believed to be because purchasing coil steel can be purchased in bulk to reduce raw material costs.

The next Scaffolding business is more interesting.

In fact, Scaffolding's main role is to protect the building in the building (a bit of a tongue twister), so the quality must be safe.

However, until 2023, there were no specific rules for Scaffolding. It was only after Malaysia implemented the MS1462 standard that Scaffolding must follow the standard did there be a major shift in this segment. If builders casually misuse Scaffolding that does not meet the standards, they will need to be fined.

As a result, demand for scaffolding that complies with MS1462 standards has greatly increased in the construction market since last year, and the price is about 3 to 4 times more expensive than unqualified. For example, PLYTEC (0289), which has just recently been on the market, is a peer example.

At the same time as prices have risen, the market has also spawned a leasing (“leasing”) business. Since scaffolding needs to be repaired every time it is used up, not everyone can buy it and then have equipment to repair it, so leasing is more convenient.

As for the final trading business, the moderator thinks there's nothing particularly interesting to say; it is a relatively common business.

Through this IPO, BWYS is expected to raise around RM56.4 million in capital, and the vast majority of this capital will be invested in building a new Penang plant, purchasing equipment, and investing in an ERP system. This is expected to cost RM22.8 million (40.4%), RM7.7 million (13.7%), and RM10.8 million (19.2%).

Readers who have time to read the BWYS prospectus should be curious why the company's current production capacity utilization rate is low (less than 50.0% in some parts), yet it is investing in a new plant?

In fact, the main purpose of the company's current IPO is to expand its business into manufacturing PU sandwich panels (“PU Foam Sandwhich Panel”), because PU sandwich panels require a very long production line. In the past, the length of the company's Penang 1572 plant was 111 meters, while the length of the new Block 1 plant was 180 meters, so it was possible to complete this new product.

Basically, PU sandwich panels are mainly used for insulation and sound insulation of partitions, ceilings, or floors. It is also a construction material. This product only adds a polyurethane (“PU”) sandwich layer to the coil steel commonly used by the company, and is completed by a different process.

In addition, BWYS will also use RM4.0 million (7.1%) of IPO capital to repay bank loans, RM5.5 million (9.8%) for operating expenses, and finally RM5.5 million (9.8%) to cover listing fees.

In terms of financial performance, BWYS's revenue increased from RM130.9 million for FY2020 to RM246.1 million for FY2023, while profit after tax (“PAT”) increased from RM3.3 million to RM17.6 million (but still lower than FY2022's RM23.5 million), and profit margin after tax (“PAT Margin”) was 7.2% in FY2023.

We can also see that BWYS's customer base is generally a construction or engineering company (or some wholesaler), so the company's performance will also fluctuate according to the ups and downs of the construction industry. Readers need to be aware of this.

Also, since BWYS is in the steel industry, fluctuations in the price of coil steel will directly affect the company's cost of purchasing raw materials ❕ and judging from the prospectus, about 79.3% of the company's raw materials in FY2023 are settled in USD. Currently, it is as high as USD, which may also affect the company's operating costs.

Well, both of the above points are part of the company's risk warning, but the moderator believes that BWYS should be a steady and stable company. Judging from the fact that the company can still maintain profits during FY2020, this company has some experience in dealing with high and low steel prices, and it is also an established brand in the industry.

However, BWYS will be listed at a valuation of 12.9 times PE. Currently, peer ASTINO's PE is 7.96 times, and AJIYA (7609) cannot be calculated due to losses; I don't know what readers think of BWYS?

Photo source: taken from BWYS Group's official website

Disclaimers:

The moderator is not a licensed stock analyst, so we don't provide you with any trading advice. If necessary, you can ask a licensed stock analyst or licensed stock broker.

The current status of the moderator is iFAST Capital Sdn. Bhd. He is also the marketing representative of TA Securities Holdings Berhad, and is an independent financial content writer, and does not provide financial consulting services.

At the time of writing this article, or in the short term (within 3 months), the moderator itself was not interested in investing in or already owning the company mentioned above, unless new factors came up, so it is important for readers to check the independence of this content.

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