This article first appeared in Capital, The Edge Malaysia Weekly on March 5, 2018 - March 11, 2018

ON March 8, inspection, test and measurement equipment player QES Group Bhd will make its debut on Bursa Malaysia’s ACE Market.

Established in 1991, QES is principally a distributor of inspection, test and measurement equipment to the electrical and electronic (E&E) as well as the automotive industries. It is also a material and engineering solutions provider to semiconductor players. Besides that, the company has a manufacturing arm involved in producing optical inspection and automated handling equipment as well as advanced wafer measurement systems, which it is looking to expand.

QES is looking to raise RM28.8 million from its initial public offering exercise. That would entail the public issue of 151.66 million new shares at 19 sen per share, and offer for sale of 75.83 million existing shares.

From the RM28.8 million raised, RM10.7 million will be utilised for capital expenditure, RM7 million for repayment of bank borrowings, RM4.9 million for product development, RM3.3 million for general working capital and the remaining RM3 million for estimated listing expenses.

M&A Securities is the adviser, sponsor, underwriter and placement agent for the IPO exercise.

QES is an exclusive distributor to several reputable companies such as Hitachi High-Tech Science Corp and SPECTRO Analytical Instruments GmbH.

“QES is not dependent on any single supplier. As a reference, the group’s largest 20 suppliers for 9MFY2017 are manufacturers, accounting for 75.8% of its total purchases,” PublicInvest Research says in a report.

It also has a distribution network spread across many countries. Its distribution and service networks cover major markets like Malaysia, Indonesia, Singapore, Thailand, the Philippines, Vietnam and Hong Kong.

Plans outlined in its prospectus include the expansion of its manufacturing division by developing three key products for the semiconductor industry, namely a fully automated vision inspection system, automatic wafer packing system and automatic wafer ID. These products are seen as the driving force of the manufacturing arm and are poised to be ready for commercial sales within one to two years after listing.

QES is also looking to further expand its recurring income business from the service, maintenance and sale of consumable parts segment. It believes this can be done by improving customers’ experience and has developed a customer relationship management software to further improve its services by collating critical information on their equipment and ensuring timely service and parts replacement.

QES is also looking to penetrate new segments, particularly in higher education institutions, petrochemicals and pharmaceutical companies.

Between FY2014 and FY2016, the distribution division contributed an average of 69.9% to revenue while manufacturing contributed an average of 8.5%, TA Securities Research says in a report.

Over the last three years, the company’s revenue and net profit have grown at a compound annual growth rate of 14.1% and 34.5%, according to the research house. In FY2016, revenue totalled RM137.28 million, from RM105.38 million in FY2014. Meanwhile, net profit grew to RM9.46 million from RM5.23 million over the same period.

The research house expects the group to sustain its growth momentum going forward and register a CAGR of 22.1% over the three years from FY2017 to FY2019. It notes that the company has an order book of RM45.3 million.

“In our view, opportunities for the group are present from the sustained growth of its key end-user markets, namely the electrical and electronic, automotive and semiconductor industry. These industries are expected to expand alongside global economic growth, rising disposable income and technological advancements, which in turn drive demand for upgrades and/or more sophisticated test and measurement equipment, materials and engineering solutions,” adds TA Securities Research, which puts a fair value of 26 sen per share on the company.

Meanwhile, PublicInvest Research has a fair value of 22 sen per share for QES, pegged to a 10 times price-earnings multiple, based on its forecast FY2018 earnings per share of 2.2 sen.

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