Market is Hot, Innit?

With the recent strong performance of IPOs, namely UUE Holdings, Go Hub Capital, and Ocean Fresh, each achieving over a 100% gain on the first day, investors are now eagerly seeking the next significant IPO. Based on our observations, we believe this IPO - Kucingko Berhad (KLSE: KUCINGKO) - has the potential to exceed expectations.

Figure 1.0: Company Logo of KUCINGKO

Many investors may have underestimated the potential of KUCINGKO.

Why KUCINGKO?

The decision to invest always comes down to the numbers, and KUCINGKO’s financials are among the most impressive I have seen in 2024. Remarkably, they might be the company with the highest net profit margin this year.

Figure 2.0: Financial Performance of KUCINGKO from FY20 to FY23

In the animation industry, market segments typically include 3D, 2D, and gaming. KUCINGKO is one of the largest 2D animation companies in Malaysia, holding a 3% market share in the total animation market size in 2021.

The 2D animation process is divided into pre-production, production, and post-production. KUCINGKO primarily operates in the production phase, creating 2D animations for major clients in the Western market.

The company’s financial growth is impressive, with revenues increasing from RM14.9 million to RM28.2 million over four financial years. Concurrently, PAT surged from RM3.7 million to RM8.4 million, resulting in a PAT margin of 29.68% in FY23.

Figure 2.1: Operating Expenses of KUCINGKO

KUCINGKO operates with a lean model where staff costs constitute the main expenses. Although some argue that FY23 shows "good numbers" due to one-off IPO-related professional fees of RM1.8 million, without these expenses, KUCINGKO's valuation and margins would be even more compelling.

IPO for Growth?

Figure 3.0: Allocation of IPO Proceeds of KUCINGKO

Unlike many IPOs in Malaysia, which aim for capacity expansion and debt reduction, KUCINGKO's approach is slightly different.

The company aims to raise approximately RM30.0 million from the IPO, primarily allocated for expansion in the Sabah and Sarawak regions for talent recruitment, US market expansion, and working capital purposes.

The Importance of the IPO Exercise

The 2D animation production industry involves Intellectual Property (IP) owners who hold rights to animations, such as Mickey Mouse. One of KUCINGKO’s clients has recently invested approximately USD40.0 million into a single IP, including production and distribution channels.

While KUCINGKO focuses on the production phase, they have had to turn down some projects due to staff constraints. The IPO will increase KUCINGKO’s visibility and attract talent, making it the first animation company to be listed in Malaysia.

This listing will enable KUCINGKO to secure more orders, especially with their expanded presence in the United States.

Conclusion

Considering the recent performance of IPOs, KUCINGKO’s IPO should see a 100% return on the first day. Furthermore, the company plans to pay a 40% dividend from their PAT.

Will the 100% gain be enough to reflect the full potential of KUCINGKO?

Disclaimer

The information provided in this article is for educational and informational purposes only and should not be considered financial advice. Investing in stocks involves risks, including the loss of principal. Always conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author holds no responsibility for any investment decisions made based on the information provided.