Mega Fortris Launches IPO, Subscription Opens on 21st October

This IPO offers a total of 295,744,000 shares, comprising both new and existing shares.

The breakdown of the 147,973,000 new shares being offered is as follows:

- 42,250,000 issue shares to the Malaysian public.
- 25,350,000 issue shares to the eligible directors, employees of Mega Fortris and its subsidiaries (Mega Fortris Group), and persons who have contributed to the success of the Mega Fortris Group.
- 38,024,000 issue shares to identified Bumiputra investors approved by the Ministry of Investment, Trade and Industry by way of private placement.
- 42,249,000 issue shares to institutional and selected investors by way of private placement.

In addition to the new shares, up to 147,871,000 existing shares will also be offered：

- Up to 80,723,000 offer shares to institutional and selected investors by way of private placement; and
- Up to 67,598,000 offer shares to identified Bumiputera investors approved by the ministry of investment, trade and industry by way of private placement.

The company is principally involved in investment holding, design, and manufacturing of security seals, and trading of related products and services.

They are specialised in security seals, supported by two manufacturing facilities and an office located in Selangor, Malaysia, as well as 11 offices spread across 11 foreign countries as of the Last Practical Date (LPD). They possess in-house expertise that enables them to carry out end-to-end design and manufacturing of security seals. This includes identifying the specific needs of target markets and applications, product conceptualization, design and prototyping, and manufacturing.

Their business activities are as follows:

For the FYE 2021, FYE 2022, FYE 2023 and FYE 2024, 80.25%, 78.13%, 76.37% and 73.16% of their total revenue were derived from in-house designed and manufactured security seals respectively. The remaining 19.75%, 21.87%, 23.63%, and 26.84% were derived from externally sourced related products and services from third parties.

The company has demonstrated impressive financial growth, with revenues soaring from RM135.10 million in FYE2021 to RM161.30 million in FYE2023. This significant growth represents a compound annual growth rate (CAGR) of approximately 9.27%, highlighting the company's rapid market expansion. Gross Profit (GP) has also seen a marked increase, jumping from RM47.79 million to RM61.72 million over the same period, with a CAGR of about 10.5%. This growth underscores the company's enhanced efficiency and profitability.

Profit Before Tax (PBT) has followed a similar upward trend, increasing from RM7.00 million to RM19.73 million. Profit After Tax (PAT) has also shown a significant rise, growing from RM4.56 million in FYE2021 to RM15.90 million in FYE2023, reflecting the company's growing financial strength and profitability.

Looking ahead to the financial period ending (FPE) 2024, the company is poised to sustain its financial momentum. With projected revenues of RM166.71 million, a Gross Profit (GP) of RM75.55 million, and a Profit Before Tax (PBT) of RM25.22 million. The Profit After Tax (PAT) is RM21.61 million, affirming the positive trajectory of the company's financial health.

Mega Fortris Group is involved in the design and manufacture of high-security level, security level and indicative level security seals. A security seal is a device intended to detect tampering or unauthorized entry into the sealed item. Most security seals are designed for single-use only, except for electronic seals which may be reusable. Security seals are used across a wide range of industries where the integrity and security of goods after being secured and before being used or accessed are crucial. This includes industries such as, among others, manufacturing, logistics, pharmaceuticals, food and beverages, gaming, finance, wholesale and retail, and government sectors. Mega Fortris Group is involved in the design and manufacture of high-security level, security level and indicative level security seals. Some of the common types of security seals are as follows:

Expansion in global trade, coupled with economic growth and a surge in e-commerce activities, will create a favourable environment for increased demand for security seals. In 2023, the real GDP of the global economy grew by 3.2%, while Europe, Asia and the USA experienced real GDP growth rates of 1.4%, 5.0% and 2.5% respectively. The expected increase in economic and production activities may result in a rising volume of goods transported globally and domestically, underscoring the need for security measures to safeguard products and shipments. In 2023, the value of global trade declined by 3% in 2023, mainly attributed to the fall in trade in goods. Nevertheless, the outlook for the first quarter of 2024 is positive, with trade in goods forecasted to grow by 3% (Source: Vital Factor analysis).

The prices of input materials will affect the production costs for operators in the security seal industry. Some of the main input materials include, among others, plastics mainly propylene, and metal components made of carbon steel, stainless steel and aluminium. In 2023, the average prices of polypropylene, wire rod, stainless steel bright drawn bar and aluminium experienced declines mainly due to weaker demand for these input materials.

A large proportion of Mega Fortris Group’s products are exported. As such, sea freight rates have an impact on the overall cost of doing business.

The table presents a selection of companies that have been chosen for a comparative financial analysis focusing on their involvement in the security seals manufacturing industry. The companies were picked based on three main criteria: their engagement in the production of security seals, the presence of their operations within Malaysia, and the accessibility of their up-to-date financial data. This analysis aims to provide insights into the financial performance of these companies within the specified parameters.

Notably, there is no publicly available information or statistics on the manufacturing of security seals and as such, it is not possible to determine the market size and share of Mega Fortris Group.

Based on the IPO Price of RM0.67, the total gross proceeds of RM99.07 million from the  public issue will be used by the company in the following manner:

1. Capital expenditure: The company intends to approximately 87.98 million or 88.8% of the Public Issue proceeds to fund the capital expenditures relating to the establishment of a New UK Factory and new business venture in providing total solution in supplying and handling of playing cards in sealed security boxes in Macao.

2. Defray listing expenses: The company intend to allocate 11.10 million, which represents 11.2% of its budget to defray their listing expenses.

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