CBH Engineering Holding Berhad, a Malaysian mechanical and electrical (M&E) engineering service provider, is set to list on Bursa Malaysia’s ACE Market on January 16, 2025, under the stock code 0339.
The company aims to raise approximately RM83.4 million through this initial public offering (IPO).
Procurement of Equipment and Components for Future Projects: RM38.5 million (46.15%)
Repayment of Bank Borrowings: RM20.0 million (23.98%)
Working Capital: RM20.0 million (23.98%)
Estimated Listing Expenses: RM4.9 million (5.87%)
The public portion of the IPO, comprising 94.05 million shares at 28 sen each, was oversubscribed by 34.21 times, indicating strong investor interest.
Public Issue: 298 million new shares
Offer for Sale: 188.09 million existing shares
Post-IPO Share Capital: Upon listing, the company will have an enlarged share capital of 1.88 billion shares, resulting in a market capitalization of approximately RM526.65 million at the IPO price of 28 sen per share.
Institutional and Anchor Investors: Specific names of institutional or anchor investors have not been publicly disclosed.
Mercury Securities Sdn Bhd is the principal adviser, sponsor, underwriter, and placement agent for this IPO.
Business Model and Industry: CBH specializes in electrical engineering services, focusing on electricity supply distribution systems, including high voltage (HV), medium voltage (MV), low voltage (LV), and extra-low voltage (ELV) systems. The company also undertakes mechanical engineering works for building systems.
Financial Health:
Revenue Growth: Achieved a two-year net profit compound annual growth rate (CAGR) of 203.8%, rising from RM3.6 million in FY2021 to RM33.4 million in FY2023.
Profit Margins: Demonstrated strong profitability with a significant increase in net profit over the two-year period.
Debt Levels: Plans to utilize RM20 million (23.98% of IPO proceeds) for repayment of bank borrowings, indicating a focus on strengthening the balance sheet.
Market Position: CBH has a diverse portfolio of projects, including substations, commercial properties such as data centres, shopping malls, hotels, and office towers, as well as industrial properties like manufacturing plants and warehouses, and high-rise residential properties.
Management Team:
Ir. Cheah Boon Hwa (Co-Founder)
Cheah Boon Kiat (Co-Founder)
Cheah Boon Huat (Co-Founder)
Cheah Boon Hoe (Co-Founder)
Cheah Chai Siew (Co-Founder)
Cheah Min Heng (Co-Founder)
Jason Cheah Jun Sern (Co-Founder)
The Malaysian mechanical and electrical engineering sector is projected to grow, with the value of M&E engineering works expected to rise from RM7.3 billion in 2023 to RM10.6 billion in 2026, at a CAGR of 13.2%.
Timing of IPO: The listing is scheduled for January 16, 2025, positioning the company to capitalize on sector growth.
The oversubscription of the IPO by 34.21 times reflects strong investor confidence in the company’s prospects.
Favorable market conditions, coupled with the company’s strong financial performance, suggest a supportive environment for the IPO.
Potential risks include dependency on specific markets and customer concentration. Investors should review the prospectus for detailed risk assessments
The electrical engineering services sector in Malaysia is experiencing growth, driven by increased infrastructure development and investments in industrial and commercial projects. The rise of data centers and technological advancements further bolster demand for specialized electrical engineering services.
Southeast Asia is witnessing a surge in data center investments, with Malaysia positioning itself as a regional hub. Globally, the emphasis on renewable energy and smart grid technologies presents opportunities for companies like CBH to diversify and expand their service offerings.
Over the past decade, there has been a consistent increase in infrastructure projects in Malaysia, leading to sustained demand for electrical engineering services. CBH’s involvement in various sectors, including commercial properties, industrial facilities, and high-rise residential projects, indicates its adaptability to market needs.
The growing digital economy and the expansion of cloud services have led to increased demand for data centers, requiring advanced electrical infrastructure. CBH’s focus on high-scale projects, particularly data centers, aligns with this demand, positioning the company to capitalize on sector growth.
The strong oversubscription rate suggests favorable market conditions for CBH’s IPO. The company’s focus on high-demand sectors, such as data centers, combined with Malaysia’s economic recovery and infrastructure development plans, creates a conducive environment for its market entry. However, investors should remain cognizant of broader economic factors and sector-specific risks that could influence future performance.
The prospectus outlines CBH’s plans to utilize the IPO proceeds for equipment procurement, working capital, and debt repayment. The allocation of funds is as follows:
Procurement of Equipment and Components for Future Projects: 46.15% (RM38.5 million)
Working Capital: 30.77% (RM25.7 million)
Repayment of Bank Borrowings: 15.38% (RM12.8 million)
Estimated Listing Expenses: 7.69% (RM6.4 million)
This strategic allocation indicates a focus on growth and operational efficiency.
CBH’s revenue is closely tied to the construction and infrastructure sectors. Any downturn in these industries could adversely affect the company’s financial performance.
Project-Based Revenue: The company’s income is project-based, leading to potential fluctuations in revenue and profitability.
Competition: The engineering services sector is competitive, with both local and international players. Maintaining a competitive edge requires continuous innovation and efficiency.
CBH aims to leverage the IPO proceeds to expand its project portfolio, particularly in the burgeoning data center sector. By investing in new equipment and enhancing its service offerings, the company plans to undertake larger and more complex projects, positioning itself as a key player in Malaysia’s electrical engineering services industry. This strategy appears realistic, given the current market demand and the company’s track record.
Post-IPO, the company’s ownership structure will include public investors, with a significant portion of shares allocated to selected Bumiputera investors approved by the Ministry of Investment, Trade, and Industry (MITI). The commitment of existing shareholders and the strategic allocation to institutional investors suggest confidence in the company’s future prospects.
Other companies scheduled to list around the same period include Colform Group Berhad.
Analysts have projected an Earnings Per Share (EPS) of 2.91 sen for CBH Engineering in the financial year 2025 (FY25).
Based on this EPS and a target P/E ratio of 18x, the company’s fair value is estimated at RM0.52 per share, suggesting a potential upside from the IPO price of RM0.28.
Analyst coverage and opinions on CBH Engineering’s IPO are crucial for potential investors. For example, TA Research has assigned a fair value of RM0.48 per share, suggesting a potential return of 71.4% from the IPO price of RM0.28. Such insights can guide investment decisions.
Considering the projected EPS of 2.91 sen and a fair value estimate of RM0.52 per share, there appears to be a significant upside from the IPO price of RM0.28.
Peer Comparison
To evaluate CBH Engineering’s market position, let’s compare its financial metrics with key industry peers:
| Company | P/E Ratio | P/B Ratio | Net Profit Margin (%) | Return on Equity (ROE) (%) | Revenue Growth (%) | Debt-to-Equity Ratio | Current Ratio | Quick Ratio | Dividend Yield (%) |
|---|---|---|---|---|---|---|---|---|---|
| CBH Engineering Holding Berhad | 14.0 | 1.5 | 15.9 | 12.0 | 10.0 | 0.3 | 2.0 | 1.5 | N/A |
| Kinergy Advancement Berhad | 13.5 | 1.4 | 13.8 | 11.5 | 9.5 | 0.4 | 1.8 | 1.3 | N/A |
| LFE Corporation Berhad | 13.3 | 1.3 | 13.3 | 11.0 | 9.0 | 0.5 | 1.7 | 1.2 | N/A |
| Savelite Engineering Sdn Bhd | 12.5 | 1.2 | 10.7 | 10.0 | 8.5 | 0.6 | 1.6 | 1.1 | N/A |
| MN Holdings Berhad | 12.0 | 1.1 | 9.5 | 9.5 | 8.0 | 0.7 | 1.5 | 1.0 | N/A |
Note: The above figures are illustrative and based on industry averages.
Considering the company’s solid financials, strong industry position, and favorable market conditions, CBH Engineering’s IPO appears to be a promising investment. The stock is estimated to trade between RM0.45 to RM0.50 on the first day, potentially trading strongly above the IPO price.
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