This is part of the the full newsletter for Week 4 of October 2023, which you can find on LinkedIn here.

Plytec wants to raise RM37.1 million from the market

Another month, another IPO. In the Malaysian market, Plytec is trying to raise RM37.1 million and provides construction services and building materials to construction players in the market. It intends to use the proceeds for the following reasons:

• Capital Expenditure: RM8 million
• Repayment of borrowings: RM9 million
• Factory construction: RM7.8 million
• Software and hardware: RM2 million
• Working capital: RM6.3 million
• Listing expense: RM4 million

If you are planning to invest in Plytec, here are the top 5 things that you need to know about the company before you invest.

1. Revenue grew strongly by 40.3% from RM112.7 million in 2021 to RM158.1 million in 2022. This was mainly driven by a rise in construction activities in the industry as lockdown restrictions lifted.
   
2. Profit margins declined to 8.7% in 2022 from 9.6% in 2021, as it incurs more cost due to a rise in building material costs.
   
3. Plytec’s operations are mainly in Malaysia (97% of revenue). Hence, for investors, it’s best to gauge the economic condition for Malaysia primarily.
   
4. Its RM8 million capital expenditures are meant to buy self-climbing, falsework, and formwork equipment, which represents about 13% of its temporary works equipment value (RM61.4 million).
   
5. The RM7.8 million factory is a move for Plytec to venture upstream into the production of falsework equipment.
   
6. In the macro-environment, construction industry prospects remain strong with Ministry of Finance projecting that the construction sector in Malaysia will grow by 6.8% in 2024 (2023E: 6.3%).
   
7. Implied valuations for Plytec is at Price-to-Earnings ratio of 15.5 times compared to the real estate sector average of 15 times. Hence, valuations are quite in line with market.

For you: Plytec will be suitable for investors who are interested in investing in a company that will support the construction and property development activities of other players in the market. However, there are certain risks still apparent in the market. One, unsold properties and overhang remain high in the market. Two, many of the big infrastructure projects are already nearing completion (MRT2, Pan Borneo, LRT3).