$SKBSHUT / 7115 (SKB SHUTTERS CORPORATION BERHAD)

3 July 2024

SKB Shutters Stock Code 7115

https://cutt.ly/zefvrN7E

A GEM WITH HUGE POTENTIAL FOR UPSIDE WITH ITS PROPOSED NEW 9.8 ACRES NEW FACTORY IN SETIA ALAM ECO BUSINESS PARK TO BE READY IN LATE 2025 FOR ITS EXPANSION PLAN FOR NEW PRODUCTS. CURRENT PLANT CAPACITY IS FULL. GROWTH IN DATA CENTRES WILL BE DRIVING UP THE DEMAND FOR ITS fire-retardant doors and shutters, insulated fire shutters, and specialized warehouse racking systems given its products meet meeting BSI and UL (American) standards required by MNC Data Centres.

The Co in our opinion is so much undervalued given its business potential and asset undervaluation.

Current Stock Price and Valuation:

SKB Shutters is currently trading at 83 Sen, which appears to be a bargain considering its potential. The share price has ranged from 30.5 to 86 over the past year.

Based on FY 2023 earnings per share (EPS) of 11.36 Sen, the current P/E ratio is 7.31. However, projections for FY 2024 suggest an EPS of 12.0 Sen, supporting a higher valuation range of RM1.08 Sen to RM1.20 per share based on P/E ratios of 9 to 10.

Warrant at 31.5 Sen is trading at a discount with expiry date 10 Feb 2025 and exercise price at 45 Sen is also a bargain albeit you need to note it is expiring on 10 Feb 2025.

Business Strategy and Growth Potential:
• SKB Shutters is shifting towards higher-margin products such as fire-retardant doors and shutters, insulated fire shutters, and specialized warehouse racking systems. This strategic move has enabled the company to maintain a gross profit margin of around 30%.

• The upcoming completion of a new 9.8-acre factory in Setia Alam Eco Business Park by late 2025 is expected to support further expansion and accommodate new product lines, contributing to future revenue growth.

Business Strategy and Growth Potential:
• SKB Shutters is shifting towards higher-margin products such as fire retardant doors and shutters, insulated fire shutters, and specialized warehouse racking systems. This strategic move has enabled the company to maintain a gross profit margin of around 30%.

• The upcoming completion of a new 9.8-acre factory in Setia Alam Eco Business Park by late 2025 is expected to support further expansion and accommodate new product lines, contributing to future revenue growth.

Market Position and Clientele:
• The company's products are used by major multinational corporations (MNCs) including Lam Research, Micron, and Intel, indicating strong market acceptance and reliability of its products.

• Expansion into new sectors such as data centres and international markets (ASEAN countries, overseas roadshows) is expected to drive future revenue growth.

The book value of the 12 acres (522,720 sq ft) factory land in Kota Damansara is RM58,300,013 equivalent to RM111.53 per sq ft. The market value from my research is RM300 to RM350 PSF. At RM300 PSF, there could be a revaluation surplus of RM98.517 mil or about 75 Sen per share which is more than its current market capitalization.

A new powerless auto close (functioning without electricity during flood) flood protection shutter (SEE ATTACHED pdf FILE) which is PRICE 10 TIMES THE CONVENTIONAL SHUTTERS had been launched on a low profile as Company does not have the capacity to mass market it. Orders received and Installations had been done in Klang Valley premisses to prevent basement carpark flood and also MNC and factories in Penang. Roadshows is going on overseas to promote the products. SKB Shutter is not your traditional shutter company. The Company had moved away from making shutters for business premise and shopping malls.

The Company is thriving on higher margin product (you can observe its gross profit margin is about 30% from the attached Excel Financial Summaries) with its quality products, uninsulated fire shutter, insulated fire shutter, fire retardant metal doors and shutters meeting BSI and UL (American) standards. It also manufactured warehouse storage, racking structure and handling system meeting BSI and UL standards. All IKEA outlets in Malaysia used its specialised shutters and warehousing racking structure, including Philippine outlet. Thus, the Co has been gradually phasing out the lower margin products and currently able to achieve and maintain a gross profit margin of around 30%.

Little did investors know that all the MNC new buildings around Batu Kawan and across Malaysia with stringent security and fire protection partitions used SKB products. Company like Lam Research, Micron, Infineon, Intel Texas Instrument and all other big MNC. Company is riding on the current wave of FDI investments and will be very actively involved with various global Data Centre Players setting up in Kulai carrying its momentum of growth in top and bottom line. Business opportunities also arise in ASEAN countries especially Vietnam. The demand for its fire-retardant metal doors and shutters meeting BSI and UL (American) standards and racking systems by all Data Centres will be driving its top and bottom-line growth moving into FY2025.

Thus, the demand for its products by data centres will be a catalyst for relating by Mr. Market.

The challenging economic environment had not deterred SKBC from charting a double-digit growth, as revenue grew by 51% from RM74.49 million in FYE 30 June 2022 to RM112.14 million in the financial year 2023 and further growth in FY 2024.

The Group’s profit before tax for the year ended 30 June 2023 is RM18.363 million against RM12.291 million for the corresponding financial year, representing an increase of 49.40% mainly due to the increase in revenue.

The Group registered a revenue of RM84.505 million for 9 mth YTD as compared to RM77.669 million for the corresponding financial year, representing an increase of RM6.836 million of 8.80% due to increase in sale of shutters and steel door products. The Group’s profit before tax for 9 mth YTD to 31 March 2024 is RM15.02 million against RM12.557 million for the corresponding financial year, representing an increase of RM2.463 mil or 19.6% mainly due to the increase in revenue from sale of shutters, steel doors and racking products.

For the current Q3 quarter ended 31 March 2024, the Group registered a revenue of RM30.721 million as compared to the preceding quarter of RM29.039 million, representing an increase of RM1.682 million or 5.797%. The increase was mainly due to increase in sale of shutters and racking products. During the current quarter, the Group recorded profit before tax of RM6.114 million as compared to RM5.271 million in the preceding quarter, representing an increase of RM0.843 million or 16.0%.




Financial Information
Market Capital (RM): 110.49 mil @83 Sen
Number of Share: 133.12 m
Number of Warrant: 66 million exercise price 45 Sen
Warrant Maturity: 10 Feb 2025
EPS FY 2023 (cent): 11.36
P/E Ratio: 7.31
NTA: RM 95 Sen
ROE: 11.71%
CAGR Revenue: 11.8%
CAGR PAT: 49.6 %

OVERVIEW OF THE GROUP’S BUSINESS AND OPERATIONS

SKB Shutters Corporation Berhad (“SKBC”) specializes in manufacturing of roller shutters, steel doors, fire retardant doors and shutters and storage and handling system and is listed on the Main Market of Bursa Malaysia Securities Berhad since 28 March 2001. SKB Shutters Manufacturing Sdn. Bhd. and SKB Storage Industries Sdn. Bhd. are main subsidiaries of the Group. Following the Group’s listing on the stock exchange, its main objective has led to the expansion in its regional coverage, product innovation, manufacturing capability and capacity. The Group strives to achieve the vision of being recognized as the largest roller shutter and storage system manufacturer in South East Asia. For the financial year ending 2023, the Group’s mission is to be the preferred supplier of roller shutters, steel doors and storage system products in the industry and to enhance shareholders’ value. In pursuing our mission, we strategize our journey by providing the highest-quality products, with sales and delivery services that continuously exceed customers’ expectations and providing opportunities for employees to excel and be rewarded. Therefore, research and development and product testing for roller shutters to meet local regulatory requirements, engineered storage racking systems to earthquake- prone regions and many more will always be carried out by our team.


Disclaimer

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