$FEYTECH / 5322 (FEYTECH HOLDINGS BERHAD): A Company Poised to Gain from the Increase in Malaysians' Income

Background
📌 Primarily engaged in the manufacturing of automotive covers and automotive seats.
📌 The automotive covers segment includes not only automotive seat covers but also interior part covers such as door trims, steering wheels, handbrake handles, and consoles.
📌 In FY23, the highest revenue contribution came from automotive covers (45.3%), followed by automotive seats (38.4%), and finally interior part covers (16.3%).

Customer Distribution
📌 The majority of revenue comes from OEMs (93%), mainly from KIA and MAZDA. These two clients contributed 39.7% and 22.5% of annual revenue in FY23, respectively.
📌 The remaining portion comes from REMs (4.3%) and PDI (2.7%).

Latest Performance and Outlook
📌 FEYTECH has performed well in recent years, with rapid growth attributed to the introduction of a new business line in FY21, namely automotive seat manufacturing. Production volumes surged in FY23, from 1,002 seats in FY22 to 8,451 seats in FY23, primarily due to contracts with KIA and MAZDA.
📌 Additionally, FEYTECH's margins are commendable, with a gross profit margin of 38.3% (consistently above 35% for four consecutive fiscal years) and a profit margin of 20.8% (consistently above 20% for four consecutive fiscal years).
📌 Apart from KIA and MAZDA, FEYTECH has secured a contract for automotive seat manufacturing with multinational automotive company, Stellantis Gurun (Malaysia) Sdn Bhd, which encompasses brands such as Citroen, Kia, and Peugeot.
📌 Furthermore, FEYTECH has collaborations with new multinational automotive OEM companies. These new contracts are expected to commence production in June 2024, with further details (order amounts) to be updated in subsequent quarterly reports.

Financial Condition
📌 From the company's cash flow statement, it is evident that the company recorded an additional RM 11 million in borrowings in FY23 compared to FY22, yet it remains in a net cash position.
📌 Despite capital expenditures of RM 18.55 million and total dividend payments of RM 15.48 million in FY23, FEYTECH recorded a net cash inflow of RM 31.5 million.
📌 FEYTECH intends to distribute 40% of after-tax profits as dividends in the future. Prior to implementing the dividend payout policy, FEYTECH maintained a consistently high dividend payout ratio: FY20: 65.7%; FY21: 51.4%; FY22: 54.3%; FY23: 49.5%.

Future Development
📌 Construction of Kulim Plant 2 for expanding automotive seat manufacturing operations.
📌 Acquisition of land in Tanjong Malim Automotive High-Tech Valley for expanding automotive seat manufacturing operations.
📌 Establishment of a new company office with manufacturing facilities and warehouses, potentially consolidating all operations from PJ Hub to the new company and providing manufacturing space for automotive leather covers.

Competitors
📌 In terms of revenue from automotive leather covers, FEYTECH is currently the third-largest automotive leather cover manufacturer, with the highest being $PECCA / 5271 (PECCA GROUP BERHAD).
📌 According to PROVIDENCE data, FEYTECH's market share in 2023 based on automotive leather cover revenue is 25.9%.
📌 Unlike PECCA, which focuses on manufacturing automotive leather covers in multiple sectors (such as automotive and aviation), FEYTECH solely focuses on the automotive industry. However, FEYTECH can provide a one-stop solution for seats, from leather cover production to complete seat manufacturing, setting it apart from competitors.
📌 According to PROVIDENCE data, although FEYTECH's contribution to revenue in automotive seat production is not the highest, its gross profit margin is the highest among peers (33.6%).

Summary
📌 FEYTECH has managed its operations quite well. A company's ability to achieve good performance is often attributed to effective leadership. Connie Go, the non-independent executive director and CEO of FEYTECH was awarded the 2022/2023 Achievements and Leadership of Women in Business Award by female entrepreneurs has shows her ability in leading the company. Based on the IPO price of RM 0.80, FEYTECH's P/E Ratio is approximately 15 times.