Leon Fuat IPO

According to the company's website, Leon Huat Berhad is primarily in the business of trading and processing of steel products, specialising in rolled long and flat products.

Initial public offering in conjunction with the listing on the main market of bursa malaysia securities berhad comprising:

(i) Public issue of 59,310,000 new ordinary shares (approximately 19.13% of enlarged issued and paid-up share capital) of RM0.50 each (“shares”) in the following manner:
• 15,500,000 new shares available for application by the public;
• 10,000,000 new shares available for application by our eligible directors, employees and persons who have contributed to the success of our group;
• 33,810,000 new shares by way of placement to selected investors;
and

(ii) Offer for sale of up to 31,000,000 existing shares (~10%) by way of placement to bumiputera investors approved by the ministry of international trade and industry, at an issue/offer price of RM0.60 per share, payable in full upon application.


The gross proceeds from the Public Issue amounting to RM35,586,000 is intended to be utilised in the following manner:

Purpose	RM'000	Percentage	Estimated time for use (from the listing date)
Purchase of new industrial land with building	13,000	36.53%	Within 1 year
Construction of new processing plant with warehousing facilities	6,000	16.86%	Within 3 years
Purchase of new machines	6,000	16.86%	Within 3 years
Working Capital	7,786	21.88%	Within 1 year
Estimated listing expenses	2,800	7.87%	Upon Listing
Total gross proceeds	35,586	100.00%

The company's revenue & profit after tax (PAT) dipped in 2012 and the business is very dependent to the local demand. 98.13% of its revenue comes from local market. Hence, according to the company's executive director Calvin Ooi that the global steel price will not affect the local demand of its products.

	2009	2010	2011	2012
	RM'000	RM'000	RM'000	RM'000
Revenue	355,424	474,917	542,943	437,203
(growth YOY, %)		33.62%	14.32%	-19.48%
Profit after Tax	17,983	20,594	25,155	24,109
(growth YOY, %)		14.52%	22.15%	-4.16%

Revenue	FYE 31 December 2012
	RM'000	Percentage
Local market	429,047	98.13%
Japan	4,218	0.96%
Singapore	2,208	0.51%
Indonesia	1,701	0.39%
Others	29	0.01%
Total	437,203	100.00%

The IPO is looking forward to the projects of the regional economic corridors are carried out such as Iskandar Malaysia, the Northern Corridor Economic Region (NCER) and the Sabah Development Corridor (SDC) and Sarawak Corridor of Renewable Energy (SCORE).

The company's dividend policy promises 30 per cent of its net profits (dividend payout ratio) to shareholders each financial year, subject to regulations and several key factors such as cash balance and expansion funding.

Based on the Earning per Share (EPS after tax) given in the prospectus, dividend yield (dividend per share / price per share) can be calculated.

Dividend payout ratio (Dividend per share / Earning per share) = 30%, hence DPS = 0.3EPS. Substitute DPS to dividend yield formula you will get the equation like this:

Dividend yield = 0.3EPS / Price per share

Price per share (after IPO) = RM0.60
Profit After Tax (PAT) in 2013 = RM24,019,000 (*assuming no change in the PAT compare to 2012)
No. of Shares in issue (after IPO) = 250,690,000 + 59,310,000 = 310,000,000 
EPS (after IPO) = PAT / no. of Shares = RM24,109,000 / 310,000,000 = 0.07777
Price per share = RM0.60 (*assuming no change in the stock price after IPO)

Hence, Dividend Yield in 2013 = (0.3)(0.07777/0.60) = 3.89%

Besides that, the company has listed 16 major risk factors:

1. Fluctuation in Price of Steel Materials
2. Dependency on Major Suppliers
3. Regulatory Changes and Permits required by the Steel Industry
4. Dependency on Imports
5. Disruptions to Processing Facilities and Business Operations
6. Credit Risk
7. Competition
8. Absence of Long Term Contracts
9. Dependency on Executive Directors and Key Management Personnel
10. Borrowings and Financing Risk
11. Political and Economic Risks
12. Foreign Exchange Transaction Risk
13. Slowdown in the Manufacturing and Construction Sectors
14. High Inventory Holding Cost
15. Government Regulations
16. Penalties for Non Compliance of Government Regulations

Applications will be accepted from 10.00 a.m. on 13 May 2013 and will close at 5.00 p.m. on 23 May 2013. Here's other important dates:

1. Balloting of applications on 28 May 2013. 
2. Allotment of IPO shares to successful applicants on 04 June 2013. 
3. Tentative listing date 05 June 2013

What do you think about this IPO?

Resources:

1. Company website: Leon Fuat Berhad
2. Prospectus (Bursa Malaysia): Leon Fuat Berhad (LEONFB)
3. Market trend
• OSK - Steel Sector Update
• iCapitaleducation.biz - Malaysia's Steel Industry
• Maybank - Malaysia's Steel Sector
• MHMBA - Government Initial Probe Into Anti-dumping On Imported Steel Wire Rods
4. News articles
• The Star - Leon Fuat IPO to raise RM36m
• The Edge - Leon Fuat eyes RM35.6 from IPO