This article first appeared in The Edge Malaysia Weekly, on February 15 - 21, 2016.
Ingress Industrial (Thailand) Co Ltd (IIT), the automotive parts manufacturing outfit that is to be listed on the Stock Exchange of Thailand (SET), may be valued at between RM300 million and RM400 million. IIT is a subsidiary of Ingress Corp Bhd, which was listed on Bursa Malaysia before it was taken private in 2013 by its largest shareholder, Datuk Rameli Musa. IIT brings together Ingress’ automotive parts manufacturing businesses in Malaysia, Thailand and Indonesia.
In an exclusive interview with The Edge, Rameli reveals that he is looking to raise between RM60 million and RM100 million for Ingress shareholders and another RM50 million for IIT through the initial public offering (IPO).
“We are looking at a value of between RM300 million and RM400 million for IIT. The listing is the first for a foreign-based company on the Stock Exchange of Thailand. The Securities Commission actually amended several regulations to assist the listing,” he says.
IIT submitted its application to list on SET in December last year, with the issuance of 578.44 million shares through the IPO. Out of this, 316.88 million shares will be an offer for sale by Ingress and the remainder will be an issue of new shares.
Ingress’ shareholding in IIT will be diluted to 55% to 60%, says Rameli. Maybank Kim Eng Securities (Thailand) pcl is the sole financial adviser, according to the listing prospectus on SET’s website. Rameli is banking on SET granting the requisite approvals by the middle of the year and for IIT’s stock to be floated by end-2016.
The listing of IIT is the second step towards the rationalisation of the Ingress group. In its previous listed entity, Ingress was home to the automotive component manufacturing (ACM), premium automotive dealership (PAD) and energy and railway engineering businesses.
Due to the varied business divisions under Ingress, it was hard for analysts and investors to value the group when it was listed on Bursa, says Rameli. The BMW dealership, while contributing 40% of the automotive segment’s revenue, is still loss-making, he adds.
At the same time, Ingress’ venture into the railway engineering business through the partnership with Balfour Beatty Netherlands BV was not fruitful, as their bid to secure the electro-mechanical system job of the Kelana Jaya light rail transit extension project was not successful.
“We felt that the market did not appreciate the true value of Ingress back then. That’s why we took the group private and are preparing the automotive component business to be listed as a separate entity in Thailand.
“It is also a good opportunity for us to list the group now ... over the last two years we have cleaned up the books and reorganised the businesses,” says Rameli.
As at the financial year ended Jan 31, 2013 (FY2013), Ingress had RM144 million in short-term borrowings and RM85.4 million long-term borrowings. The group had RM81.5 million in cash and bank balances. (Ingress did not provide any updated financial numbers during the interview, although the filing for the listing on SET should include its financial standing. However, the filing was only prepared in Thai.)
According to news reports, IIT posted a net profit of THB163.77 million (RM19.7 million) on revenue of THB2.55 billion as at last October. If the numbers are accurate, it indicates that ITT has a net profit margin of 6.4%. As for the former listed entity, Ingress, its revenue in FY2013 was RM859.23 million with a net profit of RM20.15 million, for a net profit margin of only 2.35%. The low net profit margin was due to the BMW dealership, which brought in high revenue but a razor-thin margin.
On the decision to list in Thailand as opposed to Malaysia, Ingress’ home country, Rameli says automotive companies get better valuations in Bangkok compared with Kuala Lumpur.
Based on Bloomberg data, Aapico Hitech pcl was valued at 12.82 times earnings for a market capitalisation of RM398 million as at last Thursday while Thai Steel Cable pcl was priced at over 20 times earnings for a market valuation of RM342 million.
APM Automotive Holding Bhd was trading at 10.55 times earnings as at last Thursday while EP Manufacturing Bhd was valued at 10.75 times earnings. MBM Resources Bhd, which has an automotive dealership business similar to Ingress, was priced at 8.52 times earnings. The RM300 million to RM400 million market valuation would put IIT on a par with Aapico and Thai Steel Cable. Aapico’s net profit in the financial year ended Dec 31, 2014 (FY2014), was RM37 million while Thai Steel Cable’s was RM15.8 million.
The listing of IIT is also about riding the growth of Thailand’s automotive industry, says Rameli. The Federation of Thai Industries forecasts vehicle production in the kingdom to increase 2% year on year to 1.95 million units in 2016.
IIT owns 62.5% of Ingress Autoventures Co Ltd, a Thailand-based company. Katayama Kogyo Co Ltd owns 31.4% of Ingress Autoventures while Yonei & Co Ltd owns the rest. IIT also owns 90% of Fine Components (Thailand) Co Ltd with Iwamoto Co Ltd holding the other 10%.
In Malaysia, IIT’s business is represented by Ingress Industrial (Malaysia) Sdn Bhd (IIM), a wholly-owned subsidiary. IIM owns 90% of Ingress Precision Sdn Bhd with the remaining stake held by Katayama. IIM also owns 70% of Ingress Technologies Sdn Bhd, of which Perusahaan Otomobil Kedua Sdn Bhd (Perodua) holds the rest. According to Rameli, if all goes well, IIT may buy the stake in Ingress Technologies currently held by Perodua in the future.
In Indonesia, Ingress Precision owns 60% of PT Ingress Malindo Ventures with Katayama owning 25% and Indonesian company,PT Tidar Adyagiri Sakti holding the rest. Ingress Technologies, meanwhile, owns 100% equity interest in PT Ingress Technologies Indonesia.
As a whole, IIT houses three manufacturing facilities in Thailand, three plants in Malaysia and one factory in Indonesia.
Based on Ingress’ financial results for FY2013, its Malaysian businesses contributed the bulk of the group’s revenue and its Thailand operation made up about 25%. Indonesia’s contribution to the group’s revenue was only 1% as at FY2013.
However, the Malaysian operation includes the PAD business, which has very thin profit margins. The dealership contributed 38.4% to Ingress’ total automotive division revenue in the fourth quarter of FY2013 (4QFY2013), but it was loss-making during the quarter.
On the other hand, Ingress’ ACM business from Thailand contributed 29.4% to the group’s automotive division revenue in 4QFY2013, but made up 70% of the division’s profit. The Malaysian ACM business brought in 30.5% of the division’s revenue and 29.7% of the profit.
Ingress also has a presence in India through Ingress Mayur Auto Ventures Pvt Ltd, of which it owns 40% through Ingress Engineering Sdn Bhd. Mayur Industries Ltd, an India-based automotive components manufacturer, holds the majority stake. The Indian business is not included in the listing of IIT in Bangkok. However, Rameli reveals that Ingress may include the Indian venture in IIT in the future, provided that it owns a majority stake.
The listing of IIT provides investors with an opportunity to ride the growth of Southeast Asia’s automotive sector as it has operations in the top three markets for passenger vehicles in the region.
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