• MYR0.34 FV based on 13x FY25F P/E. BWYS Group aims to raise MYR56.4m from its IPO to expand its production capacity and fund its working capital. The group is set to benefit from the growth in the domestic manufacturing and building construction industries. The requirement for Construction Industry Development Board (CIDB)-certified scaffoldings in new construction sites is expected to boost scaffolding sales. BWYS also plans to expand into foreign markets and introduce new products via cross-selling. With a 28.4% earnings CAGR (2023-2026), its FY25F P/E of 8x is attractive.

• Steady cash flow from metal roofing products. BWYS has consistently generated over MYR110m in sales from metal roofing sheets and trusses over the past three years, thanks to its strong market position and brand recognition for BW and Vtruss. The cash-based business provides the group with a solid foundation. Despite steel price fluctuations, sales volumes have steadily increased, underscoring BWYS' market presence. Operational facilities across Malaysia serve as warehouses, enabling resellers to minimise stock and rely on prompt deliveries, enhancing customer satisfaction. Strong brand awareness is expected to support BWYS’s expansion in South-East Asia, the Middle East, and South America. Its strategic venture into insulation products like PU sandwich panels is expected to improve segment margins from FY25.

• Higher demand for CIDB-compliant scaffoldings. BWYS has seen pent-up demand for its CIDB-compliant scaffoldings following the requirement for CIDB-certified scaffoldings at new construction sites from Sep 2021. Its BW scaffoldings meet stringent safety and quality standards, making them highly sought after in the construction industry. Management expects its scaffoldings segment to see the strongest growth in the coming years, driven by the ongoing construction boom and increased regulatory compliance. An upward revision of rental rates is expected to lead to higher profit margins.

• Maximising efficiency with custom racking solutions. The global industrial racking system market is projected to grow from USD11bn in 2023 to USD15.41bn by 2031, at a CAGR of 4.3% (SkyQuest). In Malaysia, the market is expanding rapidly due to rising demand from the manufacturing, logistics, and retail sectors. The New Industrial Master Plan (NIMP) 2030 aims to boost Malaysia's manufacturing value-added products with a target CAGR of 6.5% (2022-2030). BWYS’ 'Metech' industrial racking system is well-positioned to capitalise on this growth, offering a durable, customisable, and efficient storage solution. We are optimistic on this segment's growth as it actively secures new domestic projects and customers, and commands higher margins than original equipment manufacturer (OEM) products sent to the US.

• Forecasts and valuation. We project a 3-year earnings CAGR of 28.4%, and ascribe a 13x P/E to its FY25F earnings to derive our MYR0.34 FV. The valuation is in line with the peer average of 12.6x. Key risks: Steel price and FX fluctuations, supply chain disruptions, and a shortage of foreign workers.

Source: RHB Securities Research - 28 Jun 2024