Mega Fortris Berhad (MEGAFB, 5327) is set to debut on the Bursa Main Market today. MEGAFB specialises in (i) design and manufacturing of security seals and (ii) trading of related products and services, with its main manufacturing facilities located in Malaysia. We expect MEGAFB to register core net earnings of RM29.7m and RM37.2m for FY25F and FY26F, respectively. BUY with a fair value of RM0.75, premised on a weighted average 22x PER (30% discount to sector average) on FY25F EPS.

MEGAFB’s solid growth outlook justifies the potential for higher PER valuations. Its position as a leading global provider of security seals, along with strong market expansion, highlights its growth prospects and stability. Operating in over 120 countries with a diversified customer base across various sectors, MEGAFB is well-protected from market fluctuations.

As part of its growth strategy, a significant portion of IPO proceeds is allocated for capital expenditures namely for a new factory in the UK and initiating a new business venture in Macao. The UK facility is expected to enhance production efficiency, reduce lead times, cut logistics costs, and strengthen the overall supply chain. In addition, MEGAFB’s direct distribution strategy to Macao casinos, supported by manufacturing facilities in both Malaysia and Macao, ensures reliable supply and minimises supply chain risks thus positioning the company for growth within the gaming sector.

MEGAFB’s new focus business line on supplying and managing playing cards in secure boxes for Malaysia and Macao aligns well with the gaming sector’s rapid growth, especially in the Asia-Pacific region, where the industry is experiencing a 47% CAGR from 2020 to 2022. We expect the Macao venture to leverage this trend, positioning the company for substantial growth in this niche market.

We project earnings to grow at a CAGR of 13.6% from FY25F- FY27F driven by (i) new venture in Macao, (ii) new UK factory, and (iii) broad exposure to international markets. Balance sheet is manageable with net gearing of about 0.4x as of 30 June 2024. Post IPO the company will be in net cash position, however, the cash will be reduced gradually as proceeds from IPO will be used for capex expansion.

Source: Rakuten Research - 11 Nov 2024

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