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Auto components maker and car dealer MeGroup seeks Catalist listing

Jeffrey Tan
Jeffrey Tan • 5 min read
Auto components maker and car dealer MeGroup seeks Catalist listing
SINGAPORE (Oct 29): Wong Cheong Chee, 70, has been in the auto components manufacturing and distribution industry for the last three decades. Among his notable accomplishments is the co-founding of Malaysia-listed Paragon Union, which makes and distribute
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SINGAPORE (Oct 29): Wong Cheong Chee, 70, has been in the auto components manufacturing and distribution industry for the last three decades. Among his notable accomplishments is the co-founding of Malaysia-listed Paragon Union, which makes and distributes noise, vibration and harshness (NVH) interior and insulator trims for cars, among other things.

In 1996, he resigned as Paragon director to join his ex-colleague Abdul Razak Montel, who had co-founded a rival business, Menang Nusantara (MNSB), in 1995, to become its director. Wong became a majority shareholder of MNSB in 1999 and ceased to be a major shareholder of Paragon in 2000, although he still holds 70 Paragon shares.

Today, MNSB has evolved to become MeGroup. Wong is its executive chairman and CEO; Abdul Razak is its head of sales and manufacturing. The company is seeking to list on the Catalist board of the Singapore Exchange by offering 16.5 million new shares, or 13.9% of the enlarged share capital of 118.5 million shares. The offer price of 23 cents a share implies a valuation of 7.9 times earnings for FY2018 ended March 31, and a market capitalisation of $27.3 million.

Wong says the Singapore listing will help improve MeGroup’s branding and visibility if the company expands into other markets in the region. It would also allow the company to tap the Singapore capital markets. “We think it is a little bit more advantageous [compared with listing in Malaysia],” he tells The Edge Singapore in a recent interview.

MeGroup will be raising gross proceeds of just below $3.8 million and net proceeds of just $2.4 million, which Wong says is “sufficient” to fund the company’s growth plans for now. Being listed will give the company the flexibility to raise more funds later if needed. “What we are actually looking for is a platform for future growth,” he adds.

From the net proceeds, the bulk, or $1.8 million, will be used to fund expansion, which can be either organic growth or via acquisitions. The remaining $584,000 will be set aside for general working capital purposes.

Wong and Abdul Razak have known each other for nearly four decades. They were colleagues at a company called Carpets International Malaysia Manufacturing, which had started to make carpets for cars in the early 1980s. Wong spearheaded this product development.

This exposure to the car industry — which was heavily promoted by the Malaysian government then — led Wong to continue a career in the business, leading to the founding of MeGroup. He continues to see good prospects in this business. “It was a good opportunity for me. That’s why I... took a major controlling stake,” he says.

At the start, the company was principally engaged in the manufacturing of automobile carpet flooring and other NVH components for Proton cars. NVH components are typically made from rubber, foam and other materials designed to isolate and dampen noise, vibration and harshness in vehicles. They include headliners and engine outers.

Since then, MeGroup’s customer base has expanded to include Honda Malaysia, Perusahaan Otomobil Nasional (better known as Perodua), Perodua Manufacturing and Mazda Malaysia. The company also supplies non-NVH components, such as parcel trays and board assembly decks.

MeGroup also owns and operates so-called 3S and 4S automobile dealerships for Honda, Mazda and Peugeot in various parts of Malaysia. A 3S dealership can sell new vehicles, auto parts and accessories, as well as provide after-sales services. The fourth “S” in a 4S dealership means the company can provide automobile body paintwork and collision repair services.

Sales at the manufacturing business have been climbing in the last few years, despite a fire that occurred in 2016. Its main manufacturing plant was razed because of an “accident”, says Wong, who believes there was no foul play. As a result, production was halted for two days. Full production resumed only about three months after the incident. Wong says the company managed to move into rented premises to continue its operations. It has since revamped the layout of the plant and changed its workflow processes in accordance with the advice given by the firemen.

The dealership business saw a decline in car sales, however, as there was a delay in the launch of new models. As a car dealer, Wong says, the company is bound to the marketing programme of the principal, which brings in the imported cars. As a result, sales of automobiles fell 36% y-o-y to RM41.4 million in FY2017. That also caused margins to be weighed down to as low as 2.8% that year.

The following year, MeGroup was able to enjoy a recovery of its margins to 13.2%. That helped the company report earnings of RM8.9 million, versus less than RM50,000 for FY2017. Revenue in the same period was up 65.7% y-o-y to RM148.8 million, owing to higher revenue contribution from both business segments. As at March 31, MeGroup was in a net debt position of RM3.1 million ($1.03 million).

MeGroup is banking on growth in the supply of NVH components in the heating, ventilation and air-conditioning industry. It is an approved supplier for these products to Johnson Controls Hitachi and expects to commence production and supply of NVH components to Johnson Controls Hitachi by January next year.

The IPO will close on Oct 29 and trading is scheduled to start on Oct 31. CIMB Bank Singapore is the sponsor and issue manager for the listing and CGS-CIMB Securities (Singapore) is the underwriter and placement agent.

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