Johor-based scheduled waste management services provider 5E Resources is seeking a listing on the Catalist board of the Singapore Exchange (SGX) to raise funds.
They will be used for the expansion of its operations to capture the underserved market of companies which generate small quantities of waste in the central region of Peninsular Malaysia.
5E Resources is offering 38.5 million new shares at 26 cents each. They comprise 2 million offer shares and 36.5 million placement shares.
The new shares represent about 26.1% of the enlarged share capital of 147.5 million shares in the company. The IPO is expected to raise gross proceeds of about $10 million while the post-Invitation market capitalisation for the group will be about $38.3 million.
The invitation will close at noon on May 10 and the listing and trading of shares in 5E Resources are expected to start on a “ready” basis at 9am on May 12.
The group currently does not have a formal dividend policy but it intends to recommend and distribute dividends of not less than 25% of its net profit after tax for FY2022, FY2023 and FY2024.
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RHT Capital is the issue manager and full sponsor while UOB Kay Hian is the underwriter and placement agent for the IPO.
Allocation of IPO funds
5E Resources plans to use the net IPO proceeds of $8 million to construct an off-site storage facility in Selangor whose exact location within the state has yet to be confirmed.
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The off-site storage facility will allow the group to cater to the underserved community of smaller factories that find it difficult to hire a waste management services provider to manage all their waste.
The off-site storage plant in Selangor will serve as transit storage for the waste collected from different customers before they are transported to its waste treatment plants in Johor. This off-site storage plant will also serve as the office for the group’s sales and marketing personnel in Selangor.
In addition, 5E Resources intends to use the IPO proceeds to expand its processing capacity in Johor where it will upgrade the waste treatment machinery in its facilities. It also plans to use the funds for M&As, joint ventures or strategic alliances that are synergistic to the group’s business.
5E Resources expects growth to come on the back of its expansion into the central and southern regions of Peninsular Malaysia as well as the recovery of the Malaysian economy as Covid-19 becomes endemic in the country.
“As the economy goes back to normal, so do our customers and many of them are taking this chance to expand their business. Our customers also want us to develop and expand concurrently with them,” says Lim Te Hua, executive director and CEO of 5E Resources.
While Johor may be one of the largest states in Peninsular Malaysia, there is also much to cover in the central and southern region where the group has identified “ample business opportunities”.
Apart from being the largest and most active economic region in Malaysia, general waste in central Peninsular Malaysia is forecast to grow at a CAGR of about 5.2% from 2019 to 2025, according to industry reports. Additionally, based on the latest data published by the Department of Environment of Malaysia (DOE), central Peninsula Malaysia constituted the largest proportion of scheduled waste generated, accounting for 37.1% of the total volume of the scheduled waste generated in 2019. In comparison, southern Peninsular Malaysia, where the group is currently based, accounted for 27.5% of the total volume of scheduled waste generated in the same year.
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Efforts to go public
5E Resources had previously planned to list in Hong Kong back in 2020 but ultimately decided on Singapore. Loo Sok Ching, 5E Resources’ chairman and executive director, tells The Edge Singapore in an interview: “We found that Singapore was a more suitable location for us to list. Singapore is a key financial hub and is next to Johor, where our headquarters is located. Also, listing on the Catalist board allows us greater flexibility for growth and to raise funds for our growth and expansion plans. It will also enhance our profile and our public image.”
Lim believes that the growing population and economy in Malaysia make this the right time for the group to list. He says: “Economic development and population expansion in Malaysia are expected to increase waste generation. Continuous growth and development of the country’s manufacturing sector as well as its chemical, pharmaceutical, rubber, printing and textile industries are all contributing to the growing demand for scheduled waste management services as the volume of waste generated is expected to increase. With that in mind, we believe that this is the right time for 5E Resources to embark on its next phase of growth to capitalise on these opportunities.”
Loo is the founder of 5E Resources, which was incorporated in 1997 and previously known as TS Heuls Chemical & Engineering. In the beginning, TS Heuls was primarily focused on trading chemicals and providing maintenance services for wastewater treatment plants.
However, the company’s wastewater treatment customers started to approach the company to help dispose of the residual waste, says Loo, which is a strict requirement by the Malaysian government. Back then, there were few waste management companies and more often than not, they were late in providing their services which were also not up to standard.
To meet market demand, TS Heuls transformed itself into a scheduled waste management company, which was later rebranded into 5E Resources in 2006, while TS Heuls became a subsidiary.
Recover and recycle
Today, revenue from 5E Resources’s scheduled waste management segment contributes about 80% to the group’s total revenue while 15% comes from the sale of recovered and recycled products and 3% from the group’s chemical trading business, which is run by TS Heuls.
Then there is the group’s sale of recovered and recycled products. Loo explains these come from by-products generated during the treatment and detoxification of waste. For example, instead of dumping them in a landfill, certain residual waste can be converted into a material to be used for cement. The group also purchases waste from customers that contain precious metals to process and sell.
5E Resources currently has three waste management plants in Johor and a customer base of over 500 with several multinational companies. The group also says its business complies with 34 out of 77 Waste Codes under the First Schedule of EQ(SW) Regulations in Malaysia, allowing the group to manage and treat various types of scheduled waste.
“This allows us to serve more customers and collect more waste from them, making us a onestop services provider,” says Lim.
In its latest FY2020 ended December 2020, earnings decreased 33.4% to RM8.05 million ($2.7 million) from RM12.1 million in FY2019. This came on the back of an 18.2% decline in revenue to RM44.0 million from the previous year, mainly due to the decrease in revenue from all three of the group’s segments.
According to Lim, the lacklustre FY2020 results were due to the absence of two mega ad hoc projects with high profit margins, which the group had secured in FY2019. The FY2020 period was also impacted by the Covid-19 pandemic as the group’s operations were forced to temporarily cease for about a month from March 18 to April 12, 2020, during the Movement Control Order (MCO) implemented by the Malaysian government while the group’s customers also faced similar issues.
And it seems that the group may take a while to reach its FY2019 highs as 9MFY2021 recorded earnings of just RM4.2 million, some 30.5% lesser than the RM6.1 million a year ago, despite revenue improving by 25.5% y-o-y to RM37.4 million, with all of the group’s three segments. registering growth.
Lim explains that this was due to one-off non-recurring fees of RM4.6 million. This included fees from the group’s previous listing exercise in Hong Kong as well as listing fees for its planned flotation on SGX.
Photo: 5E Resources
