Changes are afoot at Ipmuda

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BUILDING materials company Ipmuda Bhd is primed for major changes, according to CEO David Chua Soon Li, who took the helm in January. While the company’s existing business of trading in building materials is expected to thrive over the near term, new earnings streams should brighten its prospects, he says.

Chua was with Citibank Bhd before he joined Ipmuda and previously held positions as investment strategist and institutional sales dealer at investment and mutual funds.

Ipmuda’s controlling shareholder is Tan Sri Abu Sahid Mohamed, who has a 31.2% stake directly and via his flagship Maju Holdings Sdn Bhd.

Maju Holdings is slated to officially launch Maju Kuala Lumpur, which has a gross development value of RM2.1 billion. Located at The Mines, the project consists of seven towers, largely residential blocks, with adjoining shopping centres.

“Our portion [supplying building materials] should be worth some RM400 million, give or take a little,” Chua says. This would literally double the company’s existing jobs in hand, which stands at RM400 million.

Maju Holdings, which operates the 26km Maju Expressway (MEX) that connects Kuala Lumpur with Cyberjaya via Maju Expressways Sdn Bhd, is on the last leg of discussions to extend the highway to the Kuala Lumpur International Airport (KLIA).

Work on the link to the KLIA was deferred in 2003 but the company received the blessing of the Economic Council in July last year. However, there are no official documents pertaining to the award of the 18km extension, which is likely to cost about RM1.3 billion, as the government agencies are said to be undecided on the decision.

Nevertheless, according to Chua, the expressway could increase Ipmuda’s (fundamental: 0.60; valuation: 2.60) existing contracts by RM150 million over a 2½-year time-frame.

New earnings streams

Chua explains that it was looking to sign a deal with a Chinese kitchen manufacturer, a move which would significantly increase margins, he says.

He declines to divulge more, but says, “With the new Chinese partner, we will be competing against Signature (International Bhd). All along, our kitchens have been geared more towards the high end, now we are going to the mid-level, which is a big growth area for us.”

Signature International (fundamental: 0.60; valuation: 2.60) designs, manufactures, markets and retails kitchen and wardrobe systems, as well as manufactures glass and aluminium products.

Chua adds that Ipmuda is also likely to venture into manufacturing rubber gloves. Its 68%-controlled unit Control Instruments (M) Sdn Bhd is mainly involved in constructing and assembling industrial control instruments and engineering equipment, and helped set up much of the machinery for Top Glove Corp Bhd and Supermax Corp Bhd.

Much of this diversification will happen next year when Control Instruments shifts to its new plant in Nilai. The cost of this diversification is RM5 million. “Since we have the expertise in making the machinery, we will start an initial three lines next year,” Chua explains.  

When asked whether he thinks that Ipmuda lacks focus, with two very distinct revenue generators — building materials and rubber gloves, Chua says: “I think it’s utilising our strengths. Considering that we are a pioneer in this business, we might as well capitalise on this. It’s not like we are taking risks doing something we don’t understand. We are going to be a more diversified company.”

He adds that Ipmuda may seek to venture into Thailand and Indonesia, riding on the back of existing partners.

He thinks Ipmuda has been undervalued for some time now. “From a peer comparison, we are trading at about five times price earnings multiples. Our share price is about half our NTA (Ipmuda’s net tangible assets as at end-March was RM2.34).

“In terms of margins, and our credit control, they are much better than our peers’. As long as there is growth and infrastructure spending, there is potential for this business,” he says.

As at end-March, Ipmuda had cash of RM11.6 million and short and long-term debts of RM95.9 million and RM10.2 million respectively.

Based on its shareholders’ fund of RM169.7 million, Ipmuda had a net gearing of 0.55 times.

For the three months to March 31, 2015, its net profit more than doubled to RM5.4 million from a year ago while revenue was almost unchanged at RM165.7 million. A chunk of its net profit stemmed from a RM5.2 million net gain from the sale of a factory.   

Ipmuda is looking at a placement of up to 10% of its 72.5 million share base, but the details are still being ironed out.

Chua brushes aside Ipmuda’s negative cash flow of RM7.9 million as at end-March, saying he expects a recovery in cash flow via a related-party transaction. He declines to elaborate.

Nevertheless, he is optimistic. “We are peaking at the right time. We are starting at a low base. We are still a RM1 par value share, we can do a share split, a bonus issue, improve visibility. We also have strong reserves,” he says.

In May, Ipmuda’s stock hit an 18-year high of RM1.63, but has since tapered off, closing last Wednesday at RM1.23. Nevertheless, the share price is still up 50% from six months ago.

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This article first appeared in The Edge Malaysia Weekly, on July 20 - 26, 2015.