Central Global Berhad - Initiation
Thu, 02-Jan-2025 07:36 am
by Team Coverage • Apex Research

Counter

CGB (8052)

Target Price (RM)

1.00

Recommendation

Buy

Investment Highlights

 

  • Market leader in making tapes. Based on existing annual production capacity of 30.0 million m², channel checks indicates that the Group is touted to be the largest industrial tape manufacturer in the local market, commanding approximately 80% market share of high temperature masking tapes in Malaysia. The Group’s long-standing relationship with existing clienteles is a testament to the high product quality, meeting industry standards. Looking ahead, we expect production to hit c.60% (from current c.50%) on the back of the gradual improve demand from existing customers as well as on boarding of new international clientele.

     

  • Potential manufacturing & trading segment turnaround. With manufacturing and trading segment displayed inconsistency in terms of bottomline contribution, we believe a potential turnaround in is in the cards, supported by addition of more efficient masking tape coaster production line in early-2025 to capture stronger demand from existing and new clients. Upon completion of expansion plan, CGB’s annual production capacity is expected to double up to 60.0 million m², cater to rising demand particularly from the export market. We gathered that one of the largest international clients is in the midst to commit to take up part of the capacity during the first phase of expansion in 2025.

     

  • Stepping up presence in construction space. Recall that CGB has acquired 70% equity stake in RYRT International Sdn Bhd (RYRT) back in January 2022. Thereafter, the Group acquired the remainder 30% equity stake in RYRT in October 2023. This segment will play a dominant role in terms of PBT contribution at RM27.3m/RM36.5m, making up to 81.0%/80.8% of total Group PBT for FY26F/FY27F that is supported by progressive recognition of outstanding orderbook at RM729.49m (mainly anchored by newly secured Pan Borneo Highway project). We believe that the aforementioned project (which is the single largest contract secured) will pave way for the Group to secured projects will similar or large scale moving forward.

     

  • Orderbook replenishment prospects is firm. With a relatively massive tenderbook of RM5.59bn across a dozen of construction projects, we project CGB to be able to secure c.RM600.0m worth of new orders in FY26F. Also, the establishment of physical office located at Sabah will re-inforce the Group’s presence within East Malaysia. We believe orderbook replenishment remains firm, supported by a healthy mixture of infra and building-related tenders on hand, at present. The tail-end of several construction jobs particularly in 1H2025 will provide room for the Group to maneuver resources for new projects. While burn rate is expected to remain flattish in FY25, we expect burn rate to hit above RM200.0m in both FY26F and FY27F, on the back of the execution of more sizable projects. 

     

  • Valuation & Recommendation. We initiate coverage on Central Global Berhad with a BUY recommendation and a target price of RM1.00 based on Sum-of-Parts (SOP) valuation and three-star ESG rating. The manufacturing & trading segment is pegged to P/E multiple of 18.0x, which is a slight premium against selected peers involved in adhesive and label business (premium is justified by CGB’s strong business presence, commanding c.80% market share in local high temperature masking tape business), while the construction segment is pegged to 28.0x P/E, about 20% discount to Bursa Malaysia construction sector P/E of 36.1x.

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