CAP seeks to solidify its presence in China via Bursa listing (The Star)

Scheduled to be listed by the month's end, China Automobile Parts Holdings Ltd (CAP) may be a curtain raiser of sorts for more initial public offerings (IPOs) lining up for listings on Bursa Malaysia.

Armed with a bevy of the latest gadgets, managing director Terry Li tells StarBizWeek that the company has grown considerably in the past and the listing now is its platform to gain recognition for the company. A flotation is also seen as a means to solidify its presence in China.

Helming a company of almost 600 employees at just a young age of 34, Li has been relying on the support of his uncle and wife who have been helping him out since the company was founded.

“We are largely focused on serving the aftermarket segment for replacement chassis components. This market is substantially larger than the consumption by new-vehicle manufacturing due to the regular replacement of chassis components of goods-transporting vehicles,” Li says.

In China, products from Fujian-based CAP are sold under its own brands such as Lidun, Suoli and PL and through 19 authorised distributors covering 17 provinces and municipalities. About two thirds of the parts produced are supplied within China, while the rest are exported overseas.

Beside that, its products are also exported to Malaysia, Indonesia, the Philippines, Dubai, Saudi Arabia and South Africa via trading houses.

“Our products have been sold in Malaysia for the past seven to eight years, and we chose to list here because of the matured Malaysian market where the people are well versed in the industry and are knowledgeable about the business we are involved in. There might be a possibility of setting up a production facility here but that is in the future,” he says.

Right now, he says the company is focused on solidifying its presence in China and is in the midst of setting up a representative office in Malaysia.

“We also intend to expand the distribution network and geographical footprint to areas presently not within our coverage such as Inner Mongolia, Ningxia, Gansu and Xinjiang,” he says.

He says this expansion to China's northwest would be in tandem with the republic's 12th five-year plan for National Economic and Social Development, which the government would provide support on the production of automotive parts and components to encourage mergers and acquisitions within the automotive industry and to develop the use of green-energy vehicles.

In its IPO, CAP would be issuing 90 million new shares at 68 sen each, of which 30 million shares will be made available to the Malaysian public via balloting and the balance to selected investors via private placements. CAP would be the ninth China-based company to be listed on Bursa and the fourth China IPO bought in by AmInvestment Bank Bhd.

Intending to raise RM61.2mil in proceeds, the company plans to utilise the money received for factory expansion, capacity expansion, working capital and also branding and marketing purposes.

The bulk of the proceeds amounting to RM25mil will be used to construct an additional four floors in an existing warehouse, an additional six floors on its main warehouse which presently has three floors and five more floors on top of its existing office building. Construction will commence by mid-2013 with completion expected by the first quarter of 2014. This adds about 14,054 sq m of additional built-up area to its production and office space. Some RM6.1mil will be spent to acquire machinery and equipment.

This planned increase in its installed production capacity will also be completed by 2014. With the new machinery, production capacity is targeted to expand by 51% to 88,000 tonnes of steel per annum from 58,000 tonnes in 2012.

About RM16.9mil has been allocated as working capital, with the rest of the proceeds being utilised for marketing and branding purposes and listing expenses.

CAP substantial shareholder, China Automobile Parts (BVI) Co Ltd (CAP-BVI), will also be making an offer for sale of 60 million shares to selected investors via private placement.

Founded by its deputy chairman Ong Juan Tee in 2004, CAP commenced operations under the name of QuanZhou FenSun Automobile Parts Co Ltd, currently a wholly-owned operating subsidiary of CAP and is in the business of manufacturing wheel-hub bolts and nuts, steel pins, and other chassis bolt and nut components.

“My uncle started the business after he saw the potential of the industry. His interest in the industry grew when he noticed the attractive margins the industry offered in 1999 when he was involved in the hardware trading business in Hong Kong during the construction boom,” Li says.

Post-listing, the company's substantial shareholders CAP-BVI and GuoTai International Holding Ltd will have a combined 65% stake in the company.

With steel as the primary raw material used in its manufacturing, Li says the fluctuation in steel price would affect the financial performance of the company.

“Steel accounts for 60.5% of our total cost of sales and China is the largest manufacturer of steel globally. If we are affected by fluctuations, it would be on a global scale, and not only would it affect automotive parts manufacturers but also all industries that uses steel as a raw material,” he says.

Currently, the company is accredited with the ISO/TS 16949 certification, an international benchmark for automotive products which allows the company to export its products to the United States and Europe.

“The company emphasises a lot on quality and we continue to improve on our manufacturing precision and cost-efficiency via increasing the use of automation and sophistication of production machinery as well as in-house re-engineering of manufacturing process,” he says.

Besides that, investor relations is also on Li's priority list.

“We will develop our investor relations too, and that is why we roped in Chai Wai Teck, as our chief financial officer. He brings about 28 years of experience in accounting and financial reporting and an exposure in three public listed companies previously,” he says.

For its financial year ended Dec 31, 2009 to Dec 31, 2011, the company's profit after tax had been on a growth trajectory from RM44.83mil to RM45.24mil to RM62.95mil. This was on the back of revenue of RM192.43mil, RM214.65mil and RM287.11mil respectively.

Net profit margin has averaged between 21% to 23% over this period.

Based on its annuallised 2012 earnings at an IPO price of 68 sen, it would be listed at a price to earnings ratio of 5.76 times.

CAP is slated to release its full-year 2012 results prior to the listing. Also expected is a dividend policy where 20% of its net profit will be divvied out to shareholders during its 2013 and 2014 financial years.