KHPT Holdings Berhad (KHB, 0322) is set to debut on the Bursa Ace Market on 8 Oct 2024. With a solid 29-year track record in the automotive parts and components manufacturing industry, KHB specializes in the production and sale of key automotive components, including body parts, seat structures, and engine-related parts such as absorbers. We expect KHB to register core net earnings of RM6.2m and RM7.6m for FY24F and FY25F respectively. BUY with a fair value of RM0.285, premised on a weighted average 15x PER on FY25F EPS, aligning with comparable listed peers.

KHB stands out within the domestic automotive parts and components industry underpinned by its solid foundation and nearly 30 years of expertise. In addition, its position is fortified from its solid relationships with Malaysia’s top two automotive brands namely Proton and Perodua that account for 41.3% and 18.9% share of total industry volume (TIV) respectively. KHB’s in- house dies solution expertise and process engineering capabilities provide an edge over its competitors, allowing it to produce precise automotive parts and components efficiently while maintaining cost competitiveness.

KHB’s future growth strategy includes expanding its manufacturing capacity by establishing a new automated body parts production line, incorporating automation technologies such as robotic arms to enhance production efficiency. This expansion is expected to reduce labour requirements and boost annual manufacturing capacity by 83.3% or 2.26m pieces.

Additionally, KHB plans to renovate its TPG factory to accommodate new machinery and equipment and invest in new technologies to enhance its manufacturing capacities and competitive position.

Malaysian automotive parts and components industry is poised for growth, driven by the recovering economy, increasing disposable income, and Malaysia’s car-centric culture. The TIV for vehicles has shown significant recovery post-COVID-19, and although a slight normalization of 4% is expected in 2024, the demand for automotive parts is anticipated to remain strong. We expect FY23-FY26F earnings to grow by 7%, underpinned by (i) solid demand of affordable segment, (ii) gradual expansion of manufacturing capacity, (iii) economic recovery and increasing disposable income. Meanwhile, KHB currently is in a net cash position and expected to persist post IPO.

Source: Rakuten Research - 3 Oct 2024

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