Muar Ban Lee Group Bhd (MBL), the core business of which is to set up oilseed-crushing plants for plantation clients, is en route for a listing on the Main Market of Bursa Malaysia on Oct 28.

The company aims to grow by further tapping its existing markets, such as Indonesia, Papua New Guinea (PNG) and Nigeria, and extending its operations into new markets such as Central and South America.

MBL derives most of its revenue from Indonesia, PNG and Nigeria, which together account for 50% of the world’s production of palm kernel oil.

“Currently, overseas operations contribute the bulk of MBL’s revenue, at 81.2% in FY2008 (ended Dec 31). The largest revenue source comes from Indonesia, at 42%, Malaysia (19%), PNG (16%) and Cameroon (9%),” says RHB Research in a recent report. It also notes that 32.5% of MBL’s revenue is in US dollars.

MBL plans to expand its presence in these overseas market by utilising RM1.5 million of the RM13.65 million proceeds from its initial public offering (IPO) to set up more marketing or service offices abroad.

“By October 2011, MBL intends to have set up four service offices in Indonesia (West Kalimantan, Central Kalimantan, Riau and Jakarta), one in Nigeria and one in PNG. Subsequent to that, using internal funds, MBL intends to set up another two marketing offices in Indonesia,” RHB Research comments.

Besides extending its network abroad, MBL is considering expanding its capacity, investing in R&D and diversifying its product range. Some RM3 million from the IPO proceeds will be used to purchase machinery while RM500,000 has been earmarked for R&D.

MBL has also allocated RM2.5 million from the IPO proceeds to repay bank borrowings and RM4.35 million for working capital. The remaining RM1.8 million will be used to defray estimated listing expenses.

While the company seems dependent on the Indonesian market, management says the significant level of sales to customers in Indonesia is justifiable given that MBL had ventured into the country in 1987 and that Indonesia is the largest palm oil producer in the world. Nevertheless, management is taking steps to extend its reach into other countries.

“To further diversify our geographical sources of income, our group plans to expand our market presence in Central and South America, namely Ecuador, Honduras and Brazil. These countries are developing their oil palm plantations which we believe will create vast opportunities for us to expand our future export market,” the company says in its prospectus.

As part of its growth strategy, the group will increase its key products and services from the current range. For instance, it recently diversified its product range to include the manufacture of empty fruit bunches (EFB) treatment machines. MBL recorded a revenue of RM290,000 from the sale of these machines as of June 30, 2009, while its order book for the machines stood at RM840,000.

“As for its jatropha oilseed expeller, MBL targets this new product to contribute positively to its revenue within the next three years,” RHB Research notes.

Going forward, the research outfit expects the company to continue its earnings growth with zero gearing and be in a stronger net cash position of RM7.5 million post-IPO.

“Given its low capex requirements over the next few years (of approximately RM3 million to RM4 million per annum, based on prospectus details), we expect MBL to remain in a net cash position over the next few years,” RHB Research says.

At the launch of the prospectus two weeks ago, MBL’s executive director and finance director Datuk Seri Tan Khoon Hai said the timing of the listing was right because MBL had been showing good top line annual growth of about 14% in recent years. He added that he was confident the company could maintain its growth in the coming years.

Tan also said he was positive the company had seen a revival in demand for its products as it had received confirmed orders amounting to about RM41.91 million in 1H2009. This, says RHB Research, will last MBL about 15 to 18 months.

Going forward, RHB Research is expecting MBL to improve its revenue and capacity utilisation by 2010 alongside the recovering economy and current upcycle in the plantation sector.

“We project MBL to record a three-year net profit (ex-exceptional item) compound annual growth rate of 14.8%. Top line growth will be driven by demand growth from the current plantation upcycle; and rising plantation acreage in the still largely untapped markets like Indonesia, Africa and PNG,” RHB Research says.

MBL’s operating profit margin is also expected to start rising from 2H2009, “driven by the impact of lower steel prices and low effective tax rates due to its tax pioneer status”, RHB Research says.

The research house adds that although MBL has no specific dividend policy, it assumed a conservative net payout ratio of about 20% for FY2009 to FY2011, which translates to a net dividend per share of two to three sen, or net yield of 3% to 4% based on its IPO price of 65 sen a share.

This article appeared in The Edge Malaysia, Issue 778, Oct 26-Nov 1, 2009.