INTEGRATED logistics provider Xin Hwa Holdings Bhd, which is en route to a listing on the Main Market of Bursa Malaysia on June 30, plans to spend the bulk of the listing proceeds on expansion.

The Johor-based family business is hoping to raise RM26.45 million from its initial public offering (IPO) and has earmarked 71% of that to increase its capacity.

Some RM11.4 million or 43% has been allocated for adding 101 vehicles or 8.9% to its current 1,136-strong fleet. The acquisition of the vehicles will be done in stages over the next two years.

Another RM4.8 million or 18% of the listing proceeds will go towards the construction of a new warehouse in Pasir Gudang, Johor, which will add 220,000 sq ft of floor space to its existing 224,600 sq ft. The warehouse is slated for completion in the second quarter of this year (2QFY2015) and expected to commence operations in 3QFY2015.

Xin Hwa’s warehouses have seen an average utilisation rate of 88.9% over the last four years.

“With an expected utilisation rate of over 90% by FY2016, the added capacity has been contracted by the company’s existing and new customers. However, we are conservatively forecasting a lower utilisation rate of 80% and 85% for FY2015 and FY2016 respectively,” MIDF Research says in its June 17 IPO note.

In its prospectus, Xin Hwa says, “We intend to utilise RM3.75 million (14% of the IPO proceeds) to partially repay our term loan facility of RM14.84 million, which was obtained from CIMB Bank Bhd to part-finance the construction of the new warehouse in Pasir Gudang, Johor.”

About RM3.5 million or 13.3% of the IPO proceeds has been set aside for the listing expenses while the remaining RM3.08 million or 11.65% is for working capital.

Over the past four financial years, Xin Hwa has recorded a compound annual growth rate of 10.41%, thanks to its growing land transport operations and aggressive expansion of warehousing and distribution services.

“We expect the group to maintain the upward trajectory of its revenue in FY2015 and FY2016 with top-line growth of 10.86% and 9.18% respectively on the doubling of warehouse capacity in FY2015 and addition of new vehicles to its fleet for two years after its listing exercise,” says MIDF Research.

At its issue price of 70 sen, Xin Hwa is valued at eight times its FY2014 price-earnings ratio, offering a 31.4% upside based on MIDF Research’s target price of 92 sen for the stock.

Xin Hwa will have an enlarged issued and paid-up capital of 180 million shares with a par value of 50 sen each, giving it a market capitalisation of RM126 million upon listing.

The listing entails a public issue and offer for sale of 37.78 million new ordinary shares and

16.22 million existing ordinary shares. Nine million of the shares are available to the public, three million are for eligible directors and employees and the remaining 42 million for bumiputera investors approved by the Ministry of International Trade and Industry.

The public portion of the IPO was oversubscribed by 18.74 times, receiving a total of 8,314 applications for 177.68 million shares valued at RM124.38 million.

Xin Hwa’s major shareholders will see their stakes shrink post-IPO with largest shareholder Ng Peng Lam’s 39.93% falling to 27.95%, Ng Aik Chuan’s from 30.12% to 20.97% and Ng Yam Pin’s from 29.95% to 21.08%.

Public Investment Bank Bhd is Xin Hwa’s principal adviser, sole underwriter and placement agent for the exercise.

This article first appeared in Capital, The Edge Malaysia Weekly, on June 29 - July 5, 2015.

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