KUMPULAN PERANGSANG SELANGOR Thursday, 01 December 2022
KPS Berhad Acquires 100% Stake in MDS Advance Sdn Bhd for RM85.0 million
- The bolt-on acquisition of the high-precision CNC machining company is expected to position KPS Berhad more strongly within the engineering support industry
- MDS Advance is expected to contribute positively towards KPS Berhad's financial performance from 2023 onwards
Shah Alam, Malaysia, 1 December 2022 - Kumpulan Perangsang Selangor Berhad ("KPS Berhad" or "the Group", Bursa: 5843; Bloomberg: KUPS MK; Reuters: KPSB.KL) expects to enhance its future profitability on an enlarged earnings base with the acquisition of 100% equity stake in MDS Advance Sdn Bhd ("MDS Advance" or "the Company") by its wholly-owned subsidiary Perangsang Dinamik Sdn Bhd ("Perangsang Dinamik") for RM85.0 million. The purchase consideration of RM85.0 million values MDS Advance within the industry benchmark in terms of Enterprise Value to Earnings Before Interest, Tax, Depreciation, and Amortisation ("EV/EBITDA") ratio of 7.9x, which will be fully satisfied by internally generated funds.
About MDS Advance
MDS Advance is involved in a high-precision computer numerical control ("CNC") metal machining business, which involves metal cutting and milling. Operating on the engineering support industry landscape, its metal machining business produces and supplies intermediate products to manufacturers and end-user producers within the machinery and equipment industry.
MDS Advance was registered as a private limited company in March 2015. Its operations are spearheaded by its founder, Gan Lian Ban, and supported by a management team with strong technical expertise and industry know-how in high-precision CNC metal machining. In addition to ISO 9001:2015 and ISO 14001:2015 certifications, MDS Advance is licensed to produce machined parts and components for general customers and the medical industry. Its product suite includes precision metal parts and components spanning the medical, semiconductors, and electronics industries. Since its inception, the company has had a successful track record of customer acquisition and retention, with its key customers being market leaders and multinational corporations.
KPS Berhad's Managing Director/Group Chief Executive Officer, Ahmad Fariz Hassan, said,
"This bolt-on acquisition of MDS Advance will complement Perangsang Dinamik's current portfolio consisting of Toyoplas Manufacturing (Malaysia) Sdn Bhd and CPI (Penang) Sdn Bhd, strategically positioning it by adding to the existing range of expertise in plastic injection moulding and electronic manufacturing services ("EMS") with knowhow in metal machining. With a widened array of capabilities adding to its existing competitive advantage and value proposition, Perangsang Dinamik could offer more holistic solutions to the engineering support industry, and ultimately, the machinery and equipment ("M&E") industry, having even broader skillsets than some of the larger players in the industry.
The acquisition is also consistent with KPS Berhad's long-term business strategy of enhancing the Group's fundamentals by pursuing opportunities that would take us further on the trajectory of sustainable growth and continuous value creation. The expected higher market share would give us a more strategic positioning relative to our peers. As this acquisition would further strengthen our core manufacturing business with the platform to move towards higher margin products, it is expected to contribute towards shaping a more robust Group's financial performance with broader earnings base and visibility, and ultimately, enhance shareholder value."
The transaction fits well with KPS Berhad's investment criteria. Firstly, MDS Advance serves mature and non-cyclical industries that have been growing with population, consumerism trends and income growth. Furthermore, 90% of its revenue stream has been supported by long-term customers. Secondly, it is profitable and cash-generating, consistently generating strong EBITDA and double-digit PAT margins even amidst the challenging market conditions in recent years. Thirdly, MDS Advance will be a strategic addition to KPS Berhad's current portfolio, which comprises subsidiaries involved in injection moulding and EMS businesses.
MDS Advance's Prospect
According to Beroe Inc. Market Intelligence, the global market size for machining was USD358 billion in 2021, where 70% comprises precision machining while 30% was conventional machining. The contributing factors for this purchase include the long-term prospects of the global machining market, which are anticipated to expand at a CAGR of 7% to reach USD414.2 billion by 2024. This follows the anticipated demand development from end-user industries such as automotive, electrical, and medical devices, painting a favourable outlook on the operating environment for MDS Advance.
Moving forward, MDS Advance will continue to grow its business and acquire a broader clientele base to maintain a sustainable revenue stream. Its short-term value creation plan includes maximising in-house production. Over the medium and long term, it looks to expand its capacity and focus on automation to improve the overall process efficiency; it is currently undergoing an expansion to double its size, which is expected to be completed in the first quarter of 2023. This expansion will facilitate further growth in its market reach, alongside its other new investments in relevant technologies.
KPS Berhad's Prospect Post Acquisition
Barring any unforeseen circumstances, MDS Advance is expected to contribute positively towards KPS Berhad's financial performance upon completing the proposed acquisition by the end of the first quarter of 2023. The strategic acquisition of MDS Advance will further expand the potential of KPS Berhad's core manufacturing business, creating greater synergy within the Group by boosting the business dynamics in terms of cross-customer base and combined procurement. This will, in turn, increase overall business efficiencies and promote cost optimisation within the Group.
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About Kumpulan Perangsang Selangor Berhad (www.kps.com.my)
Incorporated on 11 August 1975, Kumpulan Perangsang Selangor Berhad ("KPS Berhad" or "the Company" or "the Group") is an investment holding company listed on the Main Market of Bursa Malaysia Securities Berhad under the Industrial Products & Services Sector. KPS Berhad has core investments in the Manufacturing sector. While enhancing shareholder value by optimising returns, KPS Berhad is committed to embedding ESG considerations in its business strategy while contributing toward sustainable economic, environmental, and social development.
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Kumpulan Perangsang Selangor Bhd published this content on 01 December 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 December 2022 10:33:05 UTC.
