Sorento Capital Berhad launches IPO, Subscription Opens on October 7th

This IPO is issuing 155,000,000 new ordinary shares as follows:

– 43,000,000 New Shares made available for application by the Malaysian Public;

– 16,000,000 New Shares made available for application by our Eligible Directors, Employees, and Persons who have contributed to the success of Sorento Capital Group; and

– 96,000,000 New Shares made available by way of private placement to Bumiputera Investors approved by the Ministry of Investment, Trade, and Industry.

Separately, there is an offer to sell 74,000,000 existing shares by way of private placement in the following manner:

– 62,500,000 Existing Shares made available to Selected Investors;

– 11,500,000 Existing Shares made available to Bumiputera Investors approved by the Ministry of Investment, Trade, and Industry.

Sorento Capital Berhad, incorporated on May 17, 2023, is a Malaysia-based investment holding company with a rich historical footprint in the sanitary ware industry since 2005. It operates primarily in the marketing, distribution, and sale of bathroom and kitchen sanitary wares.

The company has an extensive range of bathroom and kitchen sanitary ware products under its house brands, including its flagship brand 'Sorento', as well as 'Mocha', 'Cabana', and 'i-Born'. Additionally, Sorento Capital Group is the appointed distributor for foreign third-party brands of bathroom and kitchen sanitary ware products, namely 'Bravat' and 'Infinity'. The extensive range of bathroom and kitchen sanitary wares enables Sorento Capital Group to serve a wide range of customers as a one-stop bathroom and kitchen sanitary ware solution provider for both residential and commercial use.

As of September 9, 2024, approximately 80.07%, which amounts to 4,191 SKUs of products that Sorento Capital Group carries, are its house brands. The company focuses on branding, product development, promotion, and marketing of its house brands to enhance its brand presence and recognition in the market. Over the years, Sorento Capital Group has established a wide network of distribution channels, allowing it to have a broad customer reach that includes both B2B and B2C customers.

The company's customer base includes a wide network of approximately 664 dealers and 169 project customers as of the Financial Year Ended (FYE) 2024. The Group's revenue has seen a steady increase, growing from RM66.11 million in FYE 2021 to RM151.55 million in FYE 2024, reflecting a Compound Annual Growth Rate (CAGR) of 31.85%. The revenue for FYE 2024 was primarily derived from the dealer segment (64.54%), followed by project-based sales (35.05%) and online sales (0.41%).

The business model of the company is summarized as follows:

Sorento Capital Berhad, as presented in the prospectus, exhibits a robust financial performance with a consistent growth trajectory. The company's revenue has shown significant growth from RM66.11 million in FYE 2021 to RM151.55 million in FYE 2024, reflecting a substantial increase in its business operations and market reach. This growth can be attributed to the company's strategic initiatives, including the expansion of its dealer network and an increase in project-based sales.

The Group's Gross Profit (GP) has also seen a substantial rise, from RM20.79 million in FYE 2021 to RM64.48 million in FYE 2024. This increase in GP is underpinned by the company's ability to source and sell products at favorable margins, despite fluctuations in the cost of raw materials and foreign exchange rates. The Gross Profit Margin has fluctuated over the years but remains relatively strong, indicating the company's pricing strategy and cost management are effective.

Administrative expenses have increased in line with the company's expansion, rising from RM9.26 million in FYE 2021 to RM22.38 million in FYE 2024. This growth is indicative of the company's investment in its human resources, depreciation of property, plant, and equipment, and other operational costs necessary to support its expanding business.

Selling and distribution expenses have also seen an increase, reflecting the company's commitment to promoting its brands and expanding its market presence. The company has strategically allocated resources to enhance its dealer network and engage in project-based sales, which is evident in the rise of these expenses from RM3.52 million in FYE 2021 to RM8.45 million in FYE 2024.

The bathroom and kitchen sanitary ware industry in Malaysia is a mature and competitive market, with a wide range of products available to cater to diverse consumer needs. The products in this industry include a variety of plumbing fittings and fixtures such as bathtubs, water closets, wash basins, shower heads, bathroom faucets, and kitchen sinks, among others. These products are typically made from materials like ceramic, porcelain, acrylic glass, stainless steel, brass, and zinc alloy, which are durable and resistant to moisture and rust.

The industry's value chain encompasses raw material sourcing, manufacturing, branding, marketing, distribution, and retail. Key players in this industry include raw material suppliers, manufacturers, brand owners, distributors, and retailers. The competition is intense, with numerous local and international brands vying for market share. The market is driven by factors such as economic growth, rising population, urbanization, and increasing affluence, which in turn drive the property market and the demand for sanitary wares.

As of 2023, the industry in Malaysia's bathroom and kitchen sanitary ware reached RM3.05 billion, with Sorento Capital Group contributing RM112.31 million to the revenue, representing a 3.61% market share. The industry's market size has steadily expanded from RM2.41 billion in 2018 to RM3.05 billion in 2023, with a CAGR of 3.82%, driven by government initiatives to promote home ownership and improve public amenities, which in turn has increased property transactions and tourism, thus boosting demand for sanitary wares.

However, the industry also faces challenges such as economic fluctuations, competition, and the need to adapt to changing consumer preferences and regulatory standards. Despite these challenges, the industry is expected to continue growing, driven by the underlying demand for residential and commercial properties, as well as the government's commitment to public infrastructure development.

Sorento Capital Berhad anticipates utilizing the gross proceeds from its Public Issue, amounting to RM57.35 million, in the following manner:

1. Branding and Promotional Marketing: RM6,000,000 (10.46%) is allocated for branding and promotional marketing activities, which are expected to be utilized within 36 months from the date of Listing. This includes promotional events, content marketing, and participation in industry events and tradeshows.

2. Expansion of Dealer Network and Enhancement of Distribution Reach: RM6,000,000 (10.46%) is designated for the expansion and enhancement of the dealer network within 36 months from the date of Listing. This initiative aims to recruit approximately 200 new dealers throughout Malaysia over the next three years.

3. Repayment of Bank Borrowings: RM9,000,000 (15.69%) is intended for the repayment of bank borrowings within 12 months from the date of Listing. This is expected to reduce the Group's gearing level and result in interest savings.

4. Working Capital for Purchase of Inventories: RM31,350,000 (54.67%) is earmarked for working capital to support the purchase of inventories within 24 months from the date of Listing. This is to cater to the anticipated growth in demand for the Group's products.

5. Estimated Listing Expenses: RM5,000,000 (8.72%) is budgeted for the estimated listing expenses within one month from the date of Listing. This covers professional fees, fees to authorities, brokerage, underwriting commission, and placement fees, as well as miscellaneous expenses and contingencies.