DPI Holdings Bhd (DPI) is principally involved in the development, manufacturing and distribution of aerosol products such as aerosol paints and industrial aerosol products. Providing own-brand manufacturing as well as private label manufacturing services, the produced aerosol products such as aerosol paints and industrial aerosol products are used in the automotive, industrial and household markets. Apart from supplying its in-house brands of aerosol products to approximately 700 customers in Malaysia which comprises distributors, sub distributors and retailers, DPI has a total of nine private label customers, and majority of them are foreign entities. Besides that, the group is also involved in the trading of solvents and thinners.

Apart from expanding production capacity (from its current capacity of 9.7m aerosol cans per annum to 20.0m aerosol cans per annum by first half of 2020) and improving its existing aerosol filling lines with more automation, DPI intends to expand and enhance its product range for further growth and sustainability. We derive a fair value of RM0.30 based on a c.14x PE multiple to its FY2020F EPS of 2.1 sen. The IPO is expected to raise approximately RM31.6m from the issuance of 126.6m new shares. 74.4% of the proceeds will be utilised for capital expenditure and expansion while 4.1% of the proceeds are allocated for product development with ongoing research activities that are earmarked for long term future growth.

• Growth drivers. DPI’s growth will be focused on i) expansion of production capacity with setup of new building that is equipped with new fully-automated aerosol filling lines, ii) progressive improvement in existing aerosol filling lines with more automation, iii) expansion and enhancement of product range utilising new machineries and improved facilities, and iv) intensification in sales, marketing and advertising initiatives for market expansion.

• Competitive strengths. DPI’s competitive strengths include: i) competency to formulate, develop, customise and produce a wide range of aerosol paints, ii) adherence to stringent quality policies and procedures in its quality management system, which is ISO 9001:2015 certified, iii) good long-term working relationships with customers and suppliers, and iv) wide local distribution channel for aerosol products.

• Catalysts. Key drivers may include: i) high motorization rate, ii) high degree of industrialization, iii) high degree of urbanisation, iv) embracing of do-it yourself (DIY) activities, and v) favorable demographics.

• Key risks. Key downside risks, among others, include i) competition from existing and new market entrants locally and overseas, ii) reliance on customers to distribute aerosol products to end-consumers, iii) volatility of petroleum prices, and iv) fluctuations in foreign exchange rate.

Source: PublicInvest Research - 18 Dec 2018