• Through its subsidiary, the group is principally involved in the design, marketing, and sale of air fragrance and fragrance-related products. While the group was established less than 10 years ago, Vanzo’s holdings currently account for 13.3% of Malaysia’s fragrance-related market share.

• Moving forward, we project a 3-year earnings CAGR of 12.9%, with core PAT expected to reach RM5.5m, RM6.6m, and RM7.3m over the next three years, largely supported by the group’s plans to (i) strengthen its presence by setting up new retail kiosks, (ii) enhance its product range, and (iii) increase expenditure in marketing and promotional activities in pursuit of proceeds.

• We assign a fair value of RM0.30 per share for Vanzo Holdings Berhad, representing a 100% upside from the IPO price of RM0.15. This valuation is based on a P/E ratio of 20x, pegged to the mid-FY25f EPS of 1.50 sen. The ascribed P/E is 9-23% below the peer average forward P/E and historical P/E of 21.9x and 25.9x, respectively.

Investment Highlights

Leading fragrance company with significant market share. Vanzo Holdings Berhad (VANZO), a leading fragrance-related company, has established itself as a fastgrowing FMCG player in the fragrance-related markets since 2018. The group currently holds c.13.3% market share of the fragrance-related market in Malaysia.

Increase in registered vehicles… In Malaysia, the total number of passenger and commercial vehicles registered increased from 509k in 2021 to 800k in 2023, driven by (i) continuous consumer spending aligned with positive economic prospects, (ii) the introduction of competitive priced EV models supported by government incentives, and (iii) promotional campaigns by automotive marques.

…bode well for Vanzo. Malaysians predominantly drive cars for convenience, comfort, and safety. As of 2020, Malaysia had 17.7m vehicles in use, translating to 535 vehicles per 1,000 inhabitants – well above the global average of 209 per 1,000 inhabitants. This growing vehicle population supports sustained demand for Vanzo’s products.

Rising disposable income and urbanisation. Malaysia’s Gross National Income (GNI) per capita grew from RM46k in 2021 to RM53k in 2023. With greater spending power, consumers in Malaysia are expected to be more inclined to purchase lifestyle products, including air fragrance items. Malaysia is a developing nation with an urbanisation rate of 78.7% in 2023. As urbanisation progresses, more people will move to cities and live in smaller spaces. This is expected to lead to higher demand for indoor fragrance products to improve air quality in urban areas.

Strong momentum ahead. According to Providence, air fragrance industry in Malaysia grew from RM244.2m in 2021 to RM299.2m in 2023 at a CAGR of 10.7%. Moving forward, the air fragrance industry in Malaysia is forecast to grow by a CAGR of 9.0%, from an estimated RM326.1m in 2024 to RM387.5m in 2026.

Expanding product range with co-formulated scents. The company is committed to introducing at least 1 new product series annually, featuring 1 new scent coformulated by Vanzo, which to cater to a broader consumer base. By collaborating with expert perfumers or integrating unique fragrance profiles, the company can cater to diverse preferences, from luxury and natural scents to budget-friendly options. This strategy ensures sustained product innovation, capturing new market segments and enhancing brand loyalty.

Household products potential. The launch of fragranced laundry detergent capsules and softeners in May 2024 targets a broader, recurring market compared to car perfumes. This diversification reduces reliance on car fragrances and positions Vanzo in a high-growth segment, leveraging its scent expertise to differentiate from its competitors.

Company Background

Through its subsidiary, the group is principally involved in the design, marketing, and sale of air fragrance and fragrance-related products. Its air fragrance and fragrancerelated products mainly consist of car and indoor fragrance products under its own brand, “Vanzo.” The group also markets and sells fragrance-related products to complement its car and indoor fragrance products, such as accessories and other items like candle tool sets, rechargeable electric lighters, and anti-slip car mats.

As of the LPD, the group retails 12 car and indoor fragrance product series. Additionally, the group markets and sells personal and household care products, including face masks, hand sanitizers, and laundry care products. The group’s personal and household care products are sold under its own brands, “Vanzo” and “Vanscent,” as well as third-party brands, such as “CopperX.”

Financials

Revenue highlights. The group reported a revenue of RM40.9m in FY23, representing a 20.3% YoY increase, or RM6.9m. This growth was mainly driven by an increased contribution from car fragrances, which accounted for 55.1% of total revenue in FY22 and 79.7% in FY23. In terms of sales channels, revenue from its distributors and resellers remained the largest contributor, accounting for 74.6% and 50.3% of total revenue for FYE 2022 and FYE 2023, respectively. Core earnings stood at RM5.1m.

Earnings forecasts. Moving forward, we project a 3-year earnings CAGR of 12.9%, with core PAT expected to reach RM5.5m, RM6.6m, and RM7.3m over the next three years, largely supported by the group’s plans to (i) strengthen its presence by setting up new retail kiosks, (ii) enhance its product range, and (iii) increase expenditure in marketing and promotional activities in pursuit of proceeds.

Valuations

We assign a fair value of RM0.30 per share for Vanzo Holdings Berhad, representing a 100% upside from the IPO price of RM0.15. This valuation is based on a P/E ratio of 20x, pegged to the mid-FY25f EPS of 1.50 sen. Although the ascribed P/E is 9-23% below the peer average forward P/E and historical P/E of 21.9x and 25.9x, respectively, we believe it is fair given Vanzo's smaller market capitalisation of RM70.0m.

Investment risks

Dependent on key senior management. Discontinuation of service of the key senior management may disrupt key decision making within Top Vision’s business operations.

Unfavourable publicity. Any occurrence of events which draw negative publicity, comments or actions from third parties may deter customers from buying with Vanzo.

Dependent on Foshan Ikeda. Any major disruptions or sudden cessation of supply from Foshan Ikeda may result in a shortage of products and inability to market and sell products to its customers.

Exposed to foreign exchange fluctuation. Any strong unfavourable movements in the exchange rates may affect Vanzo’s profit margins as most of the imported goods are mainly transacted in RMB and USD.

Source: Mplus Research - 3 Dec 2024