Johor-based LY Corp Ltd, which will make its debut on Singapore Exchange’s (SGX) Catalist board on Wednesday, is eyeing a bigger share of the furniture market in China.

In view of the rising affluence, which in turn drives demand for furniture, LY Corp chief executive officer Tan Yong Chuan has set a target to expand its share in the Chinese market, making it to be one of the company’s key growth drivers.

“As we all know, the Chinese economy is improving, so the cost of living has obviously gone up. At the same time, the cost of manufacturing is also on the uptrend [in China], and that makes the domestic Chinese makers not as competitive as us,” Tan told The Edge Financial Daily.

To set a stronger presence in such a highly populated and competitive market, LY Corp has decided to raise more equity capital through an initial public offering (IPO) on SGX.

Proceeds earmarked for its China expansion will be used mainly for attending trade exhibitions, and product promotions through established e-commerce websites, according to Tan.

LY Corp is also investing in new technologies, besides upgrading and replacing ageing machineries, for instance, advanced and automated woodworking machinery and robotic spraying arms, to raise productivity and cost efficiency.

With the additional capital, LY Corp also intends to ramp up its manufacturing capacity by possibly acquiring new premises, particular those located near its current factories and warehouses in Batu Pahat.

The company is also currently constructing a new hostel to house all its 1,000 foreign workers, expected to be completed by the first quarter of 2018.

Being an original design manufacturer (ODM) and original equipment manufacturer (OEM), LY Corp exports its products mostly to the US.

In the financial year ended Dec 31, 2016 (FY16), exports to the US market contributed 77.2% of its top line, while Malaysia contributed 13.4%, and the remaining 9.4% from elsewhere, including China.

Some forty years after its inception, the company — which started with a sole factory in Batu Pahat — now has 15 factories and warehouses occupying a combined built-up area of approximately 1.4 million sq ft in the area, with an annual production capacity in FY16 of 8,400 40ft containers, at an utilisation rate of 67.1%.

To fund its next stage of growth, the company is offering a total of 75.84 million placement shares, priced at 26 Singapore cents each to raise S$19.7 million (RM57.82 million). Of this, 61.17 million are new shares, with the remaining 14.67 million as vendor shares.

Of its net proceeds totalling S$13 million, S$5 million will be used for upgrading of machineries, equipment, and new technology; S$4 million will be for the construction of additional facilities; S$3 million will be earmarked for general working capital purposes; and last, but not least, S$1 million for the expansion of its sales network in China.

In 2016, LY Corp exported RM249 million worth of wooden bedroom furniture, commanding a market share of 9% in the segment.

LY Corp intends to recommend and distribute a special dividend for FY17, representing a payout per share equivalent to 3% of the placement price. It is also proposing to distribute dividends of not less than 40% of profits after tax, attributable to its shareholders in respect of FY18, FY19 and FY20.

(Source:theedgemarkets.com;The Edge Financial Daily)