Listing Detail:
Listing Sought: ACE Market
Issue Price: RM 0.25
Par Value: RM 0.10

Dates:
Offer Period Open: 06-12-13
Offer Period Close: 13-12-13
Tentative listing date:  23-12-13

Number of shares:
Public Issue: 11,000,000
Private Placement: 69,000,000

Stock Code: KANGER

Official Announcement

PUBLIC ISSUE OF 80,000,000 NEW ORDINARY SHARES OF RM0.10 EACH IN OUR COMPANY (“SHARES”) AT AN ISSUE PRICE OF RM0.25 PER SHARE PAYABLE IN FULL ON APPLICATION COMPRISING:

• 11,000,000 SHARES AVAILABLE FOR APPLICATION BY THE PUBLIC; AND

• 69,000,000 SHARES AVAILABLE FOR PLACEMENT TO SELECTED INVESTORS

IN CONJUNCTION WITH OUR LISTING ON THE ACE MARKET OF BURSA MALAYSIA SECURITIES BERHAD

Company Background

Established in 2004, Kanger’s principal activity is the trading bamboo flooring and related products. The Group is recognised as the sole authorised bamboo supplier of B&Q China (one of the largest western home improvement retailers in China with currently approximately 40 stores across China and which is part of the Kingfisher PIc Group, Europe's largest home improvement retailer.)

In 2008, the Group started to venture upstream into manufacturing of bamboo flooring. The Group was soon capable of manufacturing various types’ products. At this point of time, the Group also expanded its sales market into the European Union. In 2011, the Group entered into bamboo research and development (“R&D”) with Forest Research Institute Malaysia (“FRIM”) on utilization of suitable Malaysian bamboo species for strand woven bamboo products. To date, the Group has 31 appointed “Kanger” retail stores which are mainly located in the Guangdong Province of China.

The Group has the capability of upstream and downstream production of bamboo products. The Group is fully equipped with R&D, manufacture, and distribution into the market for sales.

Address and Contact

Address: 3F, Block 1, Dakan Industrial Zone, Xili, Nanshan district, Shenzhen, China, 518055
National toll-free hotline: 400-000-7879
Tel: +0086-0755-86020081
Fax: +0086-0755-86330389
Email: service@krbamboo.cn
Website: www.krbamboo.com

Kanger eyes RM20m from IPO to fund overseas expansion

KUALA LUMPUR: China-based Kanger International Bhd, an integrated manufacturer of bamboo products, hopes to raise RM20 million from its initial public offering to enable it to expand abroad.

Kanger managing director Leng Xingmin said it plans to extend further than its current markets of the United Arab Emirates, Romania, Russia and China.

"The forthcoming listing on Bursa Malaysia will serve as a platform to grow our business to the next level," Leng said at the launch of the company's listing prospectus, here, yesterday.

The company will be listed on Bursa Malaysia's ACE Market on December 23.

The listing entails a public issue of 80 million 10 sen shares at issue price of 25 sen each, of which 11 million shares are available for application by the public and 69 million for placement to selected investors.

"Kanger will be the 10th China company to be listed and the first and only ACE Market company to be listed on Bursa Malaysia this year.

"It will have a market capitalisation of RM107.5 million upon listing.

"It will also be the last Malaysian IPO of the year," said Kenanga Investment Bank Bhd head of corporate and institutional coverage Leong Yew Loong.

Kenanga Investment is the adviser, sponsor, underwriter and placement agent for the listing.

Kanger was set up in Malaysia on August 27 last year.

The company has an agreement with FRIM, signed in 2011, to collaborate and conduct research on suitable Malaysian bamboo species for development of strand woven bamboo planks and the ensuing application of these products.

On its 2012 results, Kanger corporate adviser Christoper Goy said the company is looking at a revenue of RM45 million to RM50 million, or a 20 per cent growth.

He said its audited third-quarter results will be announced on December 21.

Uphill task but Kanger feels at home

WITH a disapproving perception towards China-based stocks to battle with and a little known industry to promote, Kanger International Bhd may need to amp up its efforts to win over retail investors in Malaysia.

However, the bamboo products manufacturer is not fazed by what seems to be the odds stacked against it. It says it is focused on attracting “high net-worth individual investors.”

The company launched its prospectus yesterday, with the initial public offering (IPO) on Dec 23.

From its IPO proceeds of RM20mil, Kanger intends to use 10% for research and development, 5% for capital expenditure, 41% for working capital, 27% for repayment of borrowings and 16.5% for the listing exercise.

Kanger’s IPO price is set at 25 sen, confirming StarBizWeek’s story that the listing would likely be priced between 24 and 26 sen.

In the report last month, it was quoted that the IPO would be well-received because of its local ties – not only through the establishment of a local plant but also the Perlis royalty’s 6% shareholding.

Kanger’s public issue comprises an issuance of 11 million new Kanger shares offered to the public and 69 million new Kanger shares for private placement. Its market capitalisation upon listing is RM107.5mil while its total enlarged issued and paid-up share capital after listing would be RM43mil.

Kanger’s 2013 estimated price-to-earnings ratio (PE) was 21 times, based on the 2013 annualised diluted net earnings per share of 1.17 stated in its prospectus.

A check on Bloomberg shows that the average PE of companies in similar home improvement businesses was 34 times.

Its profit after tax (PAT) for the first half ending June 30, 2013 was RM2.5mil, while its full financial year (FY12) PAT was RM6.37mil. Its revenue for the two periods were RM21.38mil and RM38.56mil, respectively.

The company targets a 20% growth in revenue in FY14.

For chief executive officer and managing director Leng Xingmin, Malaysia has good potential for a bamboo industry, given its natural resources. Leng will be a 67% major shareholder in the listed entity.

Kanger’s main business is producing bamboo flooring planks for the construction industry. It has also begun venturing into making wall panels which will be marketed from next year.

Leng stresses that unlike other China stocks listed on Bursa Malaysia which have no assets, operations or end users in Malaysia, Kanger actually has ties with a local organisation – through its collaboration with the Forest Reserve Institute of Malaysia (FRIM).

“We are not a company that’s coming in to raise money from investors to fund far-away operations back in China. We have collaborated with Malaysians before and would continue to do so,” Leng tells StarBizWeek in an earlier interview.

In 2011, Kanger already entered a joint venture with FRIM to collaborate on bamboo research. From that, the China company has been involved in technology transfer with FRIM.

“We have used FRIM as a marketing channel as it endorses our products. Out testings are done in FRIM too,” the 43-year-old Jiangxin Province native says.

To further enhance this collaboration, Kanger plans to set up its research and development pilot plant in Malaysia, utilising RM2mil of its IPO proceeds. The local plant will be used for Kanger’s research on local bamboo species similar to those in China that the group uses as raw material for its semi-finished flooring products.

The venue for this investment has not been finalised.

Corporate advisor Christopher Goy says at a media conference after launching the prospectus that Kanger intends to start a full-capacity production plant in one to two years.

He points out that the local bamboo is not fully utilised currently, limited mostly to making local rice dish “lemang” and decoratives only.

Goy adds that Kanger’s research on local bamboo species in collaboration with FRIM is already 70% complete. Once completed, Kanger will decide on what facilities and equipment it needs for its Malaysian factory.

To that, Leng said Kanger wants to set up a factory “in an area with lots of bamboo growth.” The location, however, has also not identified.

Kanger already has two plants in China – a manufacturing plant in Ganzhou and a raw material manufacturing plant in Yanshan.

When quizzed during the interview if Kanger has difficulty seeking loans or funding in China, Leng denies, explaining that the IPO in Malaysia is purely to raise its corporate profile and not because it is fund-starved.

Leng says that while Kanger has a couple of competitors in Malaysia, the local technology in this industry is 10 to 15 years behind what the bamboo industry in China has advanced to.

The bamboo industry has been around for three decades in China, currently valued at about 10 billion yuan in sales.

“The industry is very competitive in China and it all depends on who can outshine the others,” Leng notes. “Demand for bamboo products has also risen recently, as more people become aware of green materials and bamboo is a renewable alternative to wood.”

Kanger is among the top 20 bamboo flooring manufacturers in China, he says, adding: “We see more demand coming from other countries as the awareness for environmentally-friendly materials increases in the property and construction industries.”

Aside from flooring and wall panels, the semi-finished bamboo products can be sold as material to make furniture and decoratives. Goy explains that Kanger is marketing its products as premium material. “Of course we cannot compare with wood like teak but our bamboo products are more expensive than the laminated wood flooring.”

Its key market is China, contributing up to 50% of its sales but it also exports to Russia, Turkmenistan, United Arab Emirates, Romania, Germany, France, Australia and the United States. It exports semi-finished bamboo products both as an original equipment manufacturer and under its house brand.

In certain markets, it has also set up outlets to market the Kanger brand bamboo products.

Kanger does not have any sales channel in Malaysia at the moment. Goy says the group wants to complete its R&D before seeking distribution agents.

“We are also exploring opportunities with local property developers and are open to working with the China developers who have projects here,” he says.

The group has not fixed any dividend policy but it plans to allocate 20% of its profits for that. “In the next year, we would need the funds to expand first,” Goy says.

Kanger will be the 10th China-based stock to be listed here. It is also the only ACE listing and last IPO on Bursa Malaysia this year.

Kenanga Investment Bank is the advisor, sponsor, underwriter and placement agent for the IPO.

-- StarBiz