TA Securities. Maxwell Int l Holdings Berhad Shoes Shoes Shoes DO NOT SUBSCRIBE. New Listing

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1 A Member of the TA Group MENARA TA ONE, 22 JALAN P. RAMLEE, 525 KUALA LUMPUR, MALAYSIA TEL: / FAX: I P O Tuesday, December 28, 21 FBM KLCI: 1, Sector: Consumer Maxwell Int l Holdings Berhad Shoes Shoes Shoes THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Fair value: RM.55(+2%) New Listing DO NOT SUBSCRIBE TA Research Team Coverage ext:1635 farhana@ta.com.my Maxwell International Holdings Berhad is another newcomer in the sports shoes related industry, based in China. The company is involved in the design and manufacturing of sports shoes for the domestic and overseas market. Maxwell does not have its own brand but produces for big brands such as Yonex, Fila, Kappa and more. In recent years, Maxwell experienced robust growth in sales thanks to the increasing demand in sports shoes locally and abroad. Share Information Listing Main Market Enlarged Share Capital (mn) 4 Market RM.4 (mn) 216 Par Value.4 Issue Price.54 Oversubscription rate NA Thus, Maxwell plans on utilising its IPO proceeds for expansion and R&D in design and product development. Maxwell will raise RM34.4mn with 63mn new shares offered at RM.54 each. Going forward, Maxwell intends to pay at least 2% dividend. We believe the sports shoe related industry in China is highly competitive with more than 2 players and that China based companies listed on the KLCI trades within 2 4x PER. Hence, our fair value of RM.55 is based on 3x CY11 PER. Including 5.6% dividend yield, the stock offers a total upside of 7.6%, below our 15% benchmark. Do not subscribe. Tentative Listing Date Tentative Listing Dates Event Opening of the IPO Closing of the IPO Balloting of Applications Allotment of Shares Listing Tentative Date 21 Dec 1 28 Dec 1 3 Dec 1 4 Jan 11 6 Jan 11 Company background The company s history can be traced back to June 1999 under the name Zhenxing Shoes by Li Kwai Chun and her husband Li Chun Tak. Zhenxing Shoes engaged in the manufacturing and sale of sports shoes to domestic and overseas markets mainly through trading houses and brand distributors in the PRC and abroad. Zhenxing Shoes started with a single production line and an annual production capacity of approximately 1mn pairs of shoes. By the year 2, the company expanded its annual production to 2mn shoes by adding a second line. In 21, the company began participating in various trade fairs and exhibitions in the PRC and abroad including the Global Shoes trade show organised by Dusseldorf GmbH Germany and WSA Show organised by the World Shoe Association in Las Vegas. By 26, the company established business relationships with procurement agents for various brands in the USA. As sales volume increased, Zhenxing Shoes established a third production line and had to outsource production to a third party. Ratio & Analysis NTA per share (post IPO)(sen).5 Price to NTA (x) 1.1 Proforma ROE (%) 36.5 Proforma ROA (%) 27.6 Proforma Net Gearing (x) Net cash Utilisation of Proceeds RMmn % D&D Expansion Capex Working Capital Est. listing expenses TOTAL 34.4 Page 1 of 5

2 Business Overview The company is involved in the designing and manufacturing of sports shoes for domestic and overseas customers, which comprise mainly trading houses and brand distributors. The company manufacture shoes on an OEM and ODM basis. The company is capable of developing 1, designs in house for domestic and overseas clients. Shoes are customised according to customer s preferences. Production process are as below: The company produces for leading global brands such as Yonex, Kappa, Diadora, Fila and more. Financials Revenue contribution from court sports shoes products represented approximately 97%, 98%, 85% and 86% to total revenue for the period FY6 9 respectively. The overall increase in sports shoes was believed to be due to changing consumers taste. Sports shoes are now no longer regarded as just functional/practical apparel, but have also increased in popularity as fashionable wear. Figure 1: Revenue Breakdown by Type 1% Court shoes Casual/leisure Running shoes 9% 8% 7% 6% Casual/leisure : Comprise of boots, shoes for children, hiking, retro and leather 5% FY26 FY27 FY28 FY29 1H21 Page 2 of 5

3 Maxwell s sports shoes are sold through trading houses and brand distributors based in the PRC and overseas. A big chunk of its revenue is from domestic sales. Contribution from exports for FY6 9 accounted for 2%, 12%, 8% and 3% respectively. The increase in domestic sales was mainly due to increasing foreign shoe related companies setting up base in the PRC in recent years. Despite the decrease in export sales, the company managed to procure new direct sales export orders for the America region thanks to participation in WSA Show. Figure 2: Sales Breakdown 6 RMB'mn Domestic Exports FY6 FY7 FY8 FY9 1H9 1H1 Figure 3: EBITDA & PAT Trend % 25.1% 16.2% 17.5% % 19.1% % 27.6% 2.3% 2.2% % 25% 2% 15% 1% 5% FY26 FY27 FY28 FY29 1H21 % EBITDA RMB mn EBITDA RM mn PAT RMB mn PAT RM mn EBITDA margin PAT margin Outsourcing The company began outsourcing some of its orders to external contract manufacturers in FY6. Revenue contribution from outsourced production visà vis in house production increased from 24% to 42% between FY6 to 1H1. This is due to increasing demand coupled with management s strategy to focus more on D&D and sales and marketing activities through participation in trade fairs and exhibitions. Page 3 of 5

4 Figure 4: Production 'mn In house production Outsourced production FY6 FY7 FY8 FY9 1H9 1H1 Moving forward, the proportion of production volume to be outsourced would depend on the availability and ability of the external contract manufacturer. Note however the decision to outsource is reviewed periodically on a case bycase basis. The company does not outsource for export markets as the overseas customers are generally stricter with product design specifications and product quality requirements. Statistics of the IPO Authorised Share Capital : 125mn Shares Paid Up Share Capital at the date of the prospectus: mn shares Shares to be issued : 63.75mn shares Market Cap based on IPO listing: RM216mn Utilisation of Proceeds from the Public Issue: To raise funds for continued operations and expansion To enhance business profile and future prospects To gain access to capital markets To enhance the liquidity in the shares INVESTMENT SWOT Strengths Diversified range of product designs Located close to raw materials Not reliant on one or two major customers. Weaknesses Fairly reliant on external contract manufacturers Absence of long term contracts Opportunities The PRC is a big market on its own Expansion of capacity to meet increasing demand Due to high number of players in the industry, the company could expand through acquisitions, joint ventures or strategic alliances Threats Low barriers to entry the industry has more than 2 players Exposed to rising production costs in the PRC Growing competition from abroad with the loss of cost advantage from Southeast Asian economies such as Vietnam and Cambodia. Page 4 of 5

5 Figure 5: Peers Comparison Market cap (RM'mn) Est CY11 PBT margin (%) Est. CY11 PAT margin (%) CY11 Est. PER Multisports Xingquan K Star Market capital weighted average 3. Valuation At the IPO price, Maxwell is trading at 3.2x FY1 PER and 3.x FY11 PER. The weighted average of market capitalisation of other China based in the same industry listed in KL is estimated 3.x CY11 PER. Therefore, we derive a fair value of RM.55 for Maxwell based on 3.x FY11 PER. The company intends to pay at least 2% dividend for FY1 11, which would translate into a dividend yield of 5.6%. Earnings Summary YE'Dec (RM'mn) FY6 FY7 FY8 FY9 FY1e FY11e Revenue Gross profit EBITDA PBT Tax PAT EPS PER Gross margin PBT margin PAT margin Tax rate Disclaimer 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 HOLDINGS BERHAD (14948-M) MENARA TA ONE, 22 JALAN P. RAMLEE, 525 KUALA LUMPUR, MALAYSIA TEL: / FAX: (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan Head of Research Page 5 of 5