This article first appeared in The Edge Malaysia Weekly, on May 16 - 22, 2016.

LKL International Bhd, which is involved in the design and manufacture of medical beds, peripherals and accessories, aims to ride the resilient growth of the healthcare services industry.

According to an independent market research report — by Smith Zander International Sdn Bhd, which was disclosed in the prospectus — the healthcare services industry in Malaysia grew — in terms of total healthcare expenditure — at a compound annual growth rate (CAGR) of 9.7% from 2004 to 2013. Malaysia’s ratio of medical beds per 1,000 population stood at 1.9 beds in 2014, below both the developing country average of 2.2 beds and world average of 3 beds, suggesting that there is room for further growth for medical beds in the country.

LKL Advance Metaltech Sdn Bhd, a wholly-owned subsidiary of LKL International, has been in the business of manufacturing and trading hospital furniture, accessories, and steel and wooden furniture and fittings since 1996, before gradually focusing on the healthcare furniture and equipment business due to growing market demand. LKL Advance Metaltech has emerged as a market leader in supplying medical beds, capturing a market share in Malaysia of 40.5% in 2014, according to the Smith Zander report.

The group’s target end-users are primarily hospitals and medical centres, which made up about 60% of revenue for the past three years. The principal market for LKL International is Malaysia, which constituted 77.4%, 78% and 80.5% of revenue in financial year 2013, FY2014 and FY2015 respectively. The group also exports to over 30 countries on six continents.

The group expects to grow sales in existing and new local and export markets by leveraging its proven track record and established reputation in Malaysia as well as its wide reach in international markets. Future plans include strengthening the company’s global footprint by penetrating new markets in developed countries and emerging economies.

LKL international will also acquire new computer numerical control machines to increase automation of manufacturing processes, which will improve operating efficiency and process accuracy. There are plans to expand its manufacturing plant to facilitate greater automation and increase storage area, allowing LKL International to grow more aggressively and take up more job orders. The expansion is targeted for completion by mid-2018. Currently, LKL has six manufacturing plants.

The group’s initial public offering involves the issuance of 113 million new shares at an issue price of 20 sen per share, of which eight million were offered to the public, 13.2 million for its eligible directors and employees, 42.2 million for placement to selected investors and 49.6 million for bumiputera investors.

Of the RM22.6 million raised, RM8.5 million (37.61%) will be used for capital expenditure to purchase the computer numerical control machines, RM4 million (17.68%) for paying off its bank borrowings, RM7.6 million (33.65%) for working capital and RM2.5 million (11.1%) for listing expenses.

LKL International has recorded a steady increase in revenue and net profit from FY2013 to FY2015, with a respective CAGR of 17.8% and 16.8%. However, earnings growth for FY2015 was flat due to lacklustre top-line growth coupled with lower margins achieved. Nevertheless, profit margins were attractive despite a slight decline from FY2014 to FY2015 as a result of higher production cost.

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