With the successful relisting of telco giant Maxis Bhd last November and the expected return of another of tycoon T Ananda Krishnan’s companies, Bumi Armada Bhd, at year-end, a smaller outfit is joining the list of companies that are making a comeback to the market at higher valuations after they have been privatised at relatively low prices.
GW Plastics Holdings Bhd, previously known as Great Wall Plastic Industries Bhd (GWPI), is bound for listing on the Main Market of Bursa Malaysia on Oct 18 at twice the size of its earlier market capitalisation and valuation.
GW Plastics’ initial public offering (IPO) consists of a public issue of 16 million shares and an offer-for-sale of 45.4 million shares at 76 sen apiece. It will have a market capitalisation of RM179.36 million at the IPO price.
Based on annualised earnings for FY10, the IPO price is at a prospective price-earnings multiple of 10.4 times and a price-to-NTA ratio of 1.2 times. While the IPO valuations may not appear expensive, the value of the company has effectively doubled in just four years.
The company, which manufactures plastic film packaging products, was first listed on the local bourse in 1995 as Great Wall Plastic Industries Bhd (GWPI).
Lim. Photo by Suhaimi Yusuf
GWPI’s listed entity subsequently became property developer Encorp Bhd following a reverse takeover in 2003. The plastic manufacturing operations of GWPI were housed in a wholly owned subsidiary of Encorp, which is known for its development of The Strand in Kota Damansara.
The rationale for the takeover exercise then was to enable GWPI shareholders to benefit from Encorp’s income and cashflow from the 30-year concession to complete 10,000 apartments for teachers, apart from its property development activities.
Encorp later sold off the plastic operations under GWPI in two tranches at relatively low prices, according to announcements to Bursa Malaysia.
In October 2004, Encorp sold the first tranche, comprising 51% of GWPI to its management for RM45 million. At the time the transaction was proposed in 2003, Encorp said the price represented a net price-earnings multiple of 16.61 times for 2002 earnings and a price to NTA multiple of 0.69 times.
In November 2006, Encorp disposed of the remaining 49% of GWPI to Keybumi Sdn Bhd for RM40 million. Encorp had said then that for the year ended Dec 31, 2005, GWPI posted a net profit of RM9.99 million and had net tangible assets of RM139.96 million. The net profit and NTA attributable to the sale shares were RM4.89 million and RM68.58 million, respectively. Thus, the sale price of the second tranche was at a price-earnings multiple of 8.17 times and a price-to-NTA ratio of 0.58 times.
This brings the total value of GWPI in 2006 to RM85 million at an average price-to-book value of 0.6 times. Incidentally, this is half the value of GW Plastics’ market capitalisation and price-to-book ratio at its listing next month, meaning the value of GW Plastics has doubled in four years.
GW Plastics is not the only case where the relisted entity’s value doubles in a span of a few years. Take Tan Sri Vincent Tan-owned Cosway Corp Bhd, for example.
Cosway was delisted in 2007 at a market value of about RM413 million. However, the company was floated again via Berjaya Holdings HK (Ltd) in Hong Kong after a corporate exercise that was completed last year. The company was renamed Cosway Corp Ltd and valued at some RM1.11 billion (HK$2.55 billion), substantially higher than its value only two years earlier.
GW Plastics’ major shareholders selling a portion of their shares are CEO Lim Kok Boon (selling 1.62 million shares), Yeoh Soo Ann (5.67 million shares) and Keybumi Sdn Bhd (38.13 million shares). Post-IPO, Lim will hold a 5.67% stake in GW Plastics, Yeoh 8.19% and Keybumi 25.58%.
The IPO is expected to raise RM12.2 million, of which RM9 million will go to building its new factory block in Rawang to cater for its expansion and the remaining for working capital and to defray listing expenses.
No doubt, the management of GW Plastics has grown the business after taking it over from Encorp.
GW Plastics has been posting strong earnings growth in the past few years. For FY09 ended Dec 31, it posted a net profit of RM15.3 million, an increase of 73% from the previous year. And based on annualised earnings of the first three months of this year, the company is expecting a net profit of RM17.3 million for FY10 ending Dec 31, a 12% growth year-on-year.
Lim, at the launch of the company’s prospectus last week, noted that it was indeed a good time for GW Plastics to go for listing given the growing market for flexible plastic packaging (FPP).
“The FPP industry in Malaysia was worth RM5 billion in FY09, while export sales from Malaysia amounted to RM1.6 billion in the same year. While we have experienced tremendous uptake in the past, we believe there has never been a more exciting time for the FPP industry than the present,” Lim said.
On the impact from a stronger ringgit and currency fluctuations, Lim said the company has a natural hedge. “We export in (US) dollars, but we also buy resin, our biggest cost component, in dollars.”
Half of GW Plastics revenue comes from overseas sales and it intends to grow its overseas contribution. It exports to Japan, Denmark, South Korea, Australia and New Zealand.
Lim said the outlook for the FPP industry remained bright mainly due to the growth in the food and beverage sector.
“It is important to have the ability to capitalise and leverage on the growth of the F&B sector. There certainly are good prospects for the FPP industry,” he said.
This article appeared in The Edge Financial Daily, September 27, 2010.
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