Incorporated in 2006, Topmix has transformed itself from a trading company of high-pressure laminate (HPL) products to a brand owner through original equipment manufacturers (OEMs) with third-party décor paper suppliers on an exclusive basis.
CGS International (CGS), in its Trading Lens on Friday (Mar 29), cited there are 3 categories under the HPL products which include generic HPL (non-proprietary design – 73% of 9M23 revenue), jointly designed HPL (27%) and internally designed HPL (customised design – minimal contribution).
Besides HPL products (94% of 9M23 revenue), Topmix also offers other surface decorative products (ie. compact panels and PVC plywood – 5%) and kitchen and wardrobe accessories (1%).
As at 29 February 2024 (LPD), Topmix has c.480 designs for its surface decorative products of which 190 HPL designs are unique and exclusive to the group.
Topmix has operational presence in Skudai HQ, Johor (67% of 9M23 revenue) and Subang Sales Office, Selangor (33%) where the group’s primarily concentrates in the local market with minimal sales contribution from export markets (ie. Indonesia and Singapore – less than 1% of 9M23 revenue).
Is the company profitable?
In spite of the Covid-19 pandemic, the group posted undisrupted revenue and profitability CAGR of 55% and 100% respectively in FY20-22.
Renovation and refurbishment activities increased post-pandemic, which led to higher sales volume for HPL products with higher selling prices in FY22.
After excluding one-off listing expenses in FY22, the group’s PAT margin improved to 14% (vs.11% in FY21), attributable to a milder increase in administrative and operating expenses.
Its 9M23 core PATAMI of RM6.1m made up 64% of its FY22 core net profit. The earnings performance was affected by higher raw material costs and higher administrative expenses for the year.
Does the company have debt or cash?
Topmix’s net gearing stood at 0.57x as at end-September 2023.
Does the company pay any dividends?
The group does not have a dividend policy post-IPO. However, Topmix has paid dividends in FY21 and FY23 with a payout ratio of 12%-13% of its net profit.
Who owns the company?
• J and T Resources which is jointly owned by Teo Quek Siang (60% – Founder and Group Managing Director) and his spouse, Tan Lee Hong (40% – Executive Director) is the largest shareholder of Topmix.
The company is led by Teo, with 18 years of experience in the surface decorative products trading industry.
What is the company’s business direction?
Topmix plans to broaden its products range by venturing into assembly of Melamine faced chipboard (MFC) products. The expansion plan is set to target new customer segments, particularly furniture product manufacturers.
Topmix will construct a new factory building 2 at its existing Skudai Factory to house a new assembly line for MFC products (maximum production capacity of c.500 pieces/day) and warehouses.
This expansion also includes purchases of machinery, equipment and motor vehicles with new recruitments of workforce. The MFC assembly is expected to commence operations by June 2024.
In terms of technology enhancement, Topmix intends to purchase enterprise resource planning (ERP) software (vs. SQL software currently) to streamline business operations.
The company will also improve its Topmix HPL mobile application by incorporating augmented reality technology and introducing 360 virtual showroom tour for better users’ experience.
Topmix targets to expand its footprint to the northern region of Peninsular Malaysia by renting a new sales office in Pulau Pinang. A new showroom will be set up to enhance customers’ visualisation and selection of various range of surface decorative products. The company also intends to rent another warehouse in the central region to increase its warehouse capacity.
Topmix aims to participate in trade exhibitions and recruit 5 new marketing and sales staffs for business expansion. Moreover, the company will also work on advertising and promotional activities to create brand and product awareness.
Any corporate development?
The IPO will raise total proceeds of RM25.6m. Of the proceeds raised, 44% (RM11.3m) will be used as working capital, 23% (RM6m) for business expansion, sales and marketing, 21% (RM5.3m) for expansion into assembly of MFC products and the rest (RM3m) for estimated listing expenses.
Closing date for the IPO application will be on 4 April 2024. The group will be listed on the ACE Market on 23 April 2024.
Risks and mitigating factors
Key risks to the group include dependent on major suppliers (Zhejiang Rexin Decorative Material Co Ltd and Melatone Group – 81% of 9M23 purchases), slowdown in renovation activities, fluctuations in raw material costs (ie. décor paper, overlay paper, kraft paper and resin) and fluctuations in foreign exchange (forex).
Topmix’s key competitive advantages are: 1) Asset-light business model with one-stop solutions offerings, 2) New product design launching every 2-3 years, 3) Competitive pricing with comparable quality to foreign brands, 4) Certified eco-friendly surface decorative products and 5) More than 1,300 of customers comprising stockists, interior designers, contractors of residential and commercial properties and carpenters.
Key growth drivers for the group are supported by: 1) Recovery and growth in the residential and commercial property markets, and 2) Growing affluence of population and preference for personalised spaces.
Valuation?
The IPO price of RM0.31 values Topmix at 14.5x 12-month trailing P/E (vs. Bursa Malaysia Industrial Production Index FY22 and FY23 P/E of 11x and 33.8x respectively, according to Bloomberg).
