DPS Resources Berhad - TA Online

TA Securities Bhd
12 Aug 2004
N E W L I S T I N G
TA SECURITIES BHD
A Participating Organisations of
Bursa Malaysia Securities Berhad
RM0.87 (+16%)
Fair Value
KLCI 821.45
SHARE INFO
Stock Code
DPS
Listing
2nd Board
Enlarged Share Cap (m) 120 m
Market Cap @ RM0.87 (RMm) 104.4m
Par Value (RM) 0.5
IPO/Offer for sale/Placement (m) 11m
Issue Price (RM) 0.75
Estimated Free Float (%) 28.86
Listing Date
12-Aug-04
Major Shareholders (%)
Datuk Dr.Sow Chin Chuan 52.82%
Ismail Harith Merican 10.05%
Yayasan Melaka 8.33%
RATIO & ANALYSIS
NTA/shr (Post IPO) (RM) 0.53
Price to NTA (x) 1.64
ROE - '03 (%) 0.08
- '04F (%) 0.09
ROA - '03 (%) 0.13
- '04F (%) 0.12
Net Gearing (x) net cash
UTILISATION OF IPO PROCEEDS
(RM m)
Repayment of bank borrowing 9.5
Working capital 4.624
Capital expenditure 3.5
Estimated listing expenses 2.3
Total 19.924
12 Aug 2004
Sector : CONSUMER Bloomberg : DPS MK For Internal Circulation Only
DPS Resources Berhad
Rubberwood Kitchen Furniture Manufacturer
DPS Resources Berhad is principally involved in the manufacturing
of rubberwood kitchen furniture. The Group sells their product under
the "Three-Leaf Green" brandname. Their products are mainly
exported to Europe (32.65%) and USA (26.42%). In FY03, DPS was one
of the largest Malaysian rubberwood kitchen furniture exporters with
12% market share of the RM392m export of rubberwood furniture. The
Group is also involved in kiln drying. Based on FY05F PER of 10x, we
value DPS at RM0.87. This translates into a potential gain of 16% over
the issue price of RM0.75.
Company Background
Datuk Dr Sow Chin and his spouse, Datin Chu Kim Guek, founded the Melakabased
rubberwood kitchen furniture manufacturer, DPS Resources Berhad
in 1992. DPS Resources Berhad has two subsidiaries -- Shantawood, which
manufactures rubberwood furniture, furniture components and rooftruss and
provides kiln drying services and DPS Industries, which manufactures
rubberwood furniture and furniture components. Currently, the capacity
utilization rate is between 70 % to 80%. The Group has one of the largest
kilns drying facilities in Bukit Rambai, Melaka with 25 kiln dryer chambers
Product and Services
The company is also involved in kiln drying and manufacturing of rooftruss,
plywood doors and wooden window frames, sawmilling, and wood treatment.
DPS specializes in rubberwood kitchen furniture manufacturing. Rubberwood
furniture has a competitive attributes such as durability, natural colour and
attractive wood texture that make it highly demanded by customers.
Constraints of Rubberwood is not a problem
The Group did not face any shortages of raw materials for the past five years
since it has a good relationship with the suppliers. DPS is not overly
dependent on any single supplier because it entered into various agreements
with local rubberwood suppliers. Further, it claimed that the rubberwood
could also be sourced from neighbouring countries.
EARNINGS SUMMARY (RMm)
YE 31 Dec 1999 2000 2001 2002 2003 2004E 2005F
Revenue 32.6 53.9 56.9 55.2 65.8 69.6 76.56
Pretax profit 7.9 10.6 11.2 12.5 14.4 11.2 12.32
Net profit 4.6 6.8 6.9 7.6 9.1 9.6 10.56
EPS (Sen) 3.81 5.68 5.79 6.36 7.55 8.04 8.8
EPS Growth (%) na 48.8% 2.0% 9.8% 18.70% 6.5% 10.00%
PER (x) 18.4 12.30 12.00 11.00 9.93 9.95 10
Div (sen) na na na na na 3 3.3
Div Yield (%) na na na na na na na
Analyst
Roslina Mohamad
E-*
taresearch@ta.com.my
( 20721277 ext 1644
TA Securities Bhd (16029-V)
Menara TA One, 22 Jalan P Ramlee,
50250 Kuala Lumpur. Malaysia
Tel : 603 - 2072 1277. Fax : 603 - 2032 5048
[ 1 ] DPS Resources Berhad

TA Securities Bhd
12 Aug 2004
Competition
The furniture manufacturing industry is fragmented and highly competitive.
Malaysia has 2000 furniture manufacturers where 20% (400) are capable of
exporting. While DPS uses solely rubberwood, many of its competitors use
other raw materials such as oak, metal and MDF. DPS is however the largest
Malaysian rubberwood kitchen furniture exporter with 12% market share of
the country’s total export of RM392m in 2003.
Mainly for Export
For FY03, approximately 70% of its turnover and 63% of its PAT are contributed
by exports. Europe is the major export market accounting for 32.7% of total
export turnover and USA accounting for 26.4% of total export turnover. In
terms of profit after tax, 62% is derived from exports and 36% is from local
distribution. In terms of products, rubberwood furniture contributed RM5.9m
to PAT, Kiln drying services and furniture, RM2.2m and rooftruss RM0.9m.
PROPORTION OF 2003 TOTAL EXPORT TURNOVER
Asia Pacific
17%
Europe
33%
Middle East
24%
USA
26%
Strong customer relations
The group has a strong relationship with its customers, as most of them
have been with the company for more than 5 years. The company can transfer
the increase in raw materials cost to their customers, which reflect a strong
relationship between them. The Group has a wide customer base with
approximately 220 export customers across the 73 countries. The large
customer base enabled the Group to have a more stable income.
MAJOR CUSTOMERS
Customers Items sold % of Total Length of
Turnover relationship
(year)
Sunrise Point Sdn. Bhd Treated & kiln-dried rubberwood 11.11 5
Mission Theme Sdn. Bhd Treated & kiln-dried rubberwood 8.19 5
Mohd Azim Furniture,UAE Rubberwood furniture 5.41 6
US Tamex Corp,US Rubberwood furniture 3.94 5
· Sunrise Point Sdn. Bhd. and Mission Theme Sdn. Bhd. is also the major supplier of furniture
components for the Group.
Dependent on foreign labour
DPS relies heavily on foreign workers. Employees from countries such as
Vietnam, Indonesia, Nepal and Bangladesh account for approximately 81%
of its workforce. As the cost of foreign labour is cheaper than the cost of
local labour, it provides greater cost advantage to the company. The company
provides training to the foreign workers in order produce higher quality
products.
[ 2 ] DPS Resources Berhad

TA Securities Bhd
12 Aug 2004
Future Plans
Going forward, DPS wants to expand it facilities by acquiring new plant in
Tanjung Minyak, Melaka. This new factory will be used for sorting and grading
of rubberwood. The Group is also planning to construct a new warehouse
and a dormitory for its employees. Besides, it also plans to enhance its R &
D department in order to develop a new product design. So far, there is no
plan to use another source of wood as their raw materials. The Group also
plans to penetrate further into overseas market such as US, Germany, China
and Canada.
Growth in furniture industry
The industry is highly competitive with many furniture manufactures in
Malaysia. The growth for furniture market is expected for the next few years
where export for furniture is envisaged to hit RM7 billion in FY05 from RM5.7b
in FY03. Malaysia has potential to become one of the world's largest furniture
exporters because the sources of raw materials can be sourced easily in the
country.
PEERS COMPARISON
Company PBV EPS P/E Ratio Market Cap PBT margin
(x) (sen) (x) (RMm) (%)
1. Eurospan Holdings 0.5 4.18 16.03 27.2 8.11
2. Latitude Tree Holdings 0.7 16.0 7.75 79.89 4.11
3. Kenmark Industrial 0.9 13.17 12.3 250.96 7.85
4. Kimble Corp 1.0 20.08 6.23 100.8 8.41
5. Sern Kou Resources 1.4 11.75 7.49 80.1 13.92
Average 10.0
DPS Resources Berhad 1.47 8.04 10.0 104.4 16
Fair Value at RM0.87
We value DPS at RM 0.87 based FY05F PER of 10.0x. This is at par with
the industry average of 10x. DPS commands one of the highest margins in
the industry with PBT margin of 16% for FY04. Together with the promising
outlook for the industry despite its competive nature and DPS’s position as
the largest Malaysian exporter for rubberwood kitchen furniture exporter, we
believe it should at least trade at par with the industry average. At RM0.87,
it is at 16% premium over the IPO price of RM0.75.
The information in this report has been obtained from
sources believed to be reliable. Its accuracy or
completeness is not guaranteed and opinions are subject
to change without notice. This report is for information
only and not to be construed as a solicitation for
contracts. We accept no liability for any direct or indirect
loss arising from the use of this document. We, our
associates, directors, employees may have an interest
in the securities and/or companies mentioned herein.
for TA SECURITIES BHD,
Yaw Chun Soon, Executive Director - Operations
[ 3 ] DPS Resources Berhad