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5E Resources keeps proceeds from IPO warm as it eyes resumption of expansion plans

08 Sep 2022
Lim: We are focusing on increasing our capacity in line with the industry’s increasing organic waste content. Photo: 5E Resources
For years, factories dumped chemical waste illegally into the Kim Kim River in Johor. Things came to a head in March 2019, when toxic fumes from the waste affected more than 6,000 people in the vicinity of Pasir Gudang. Around 2,800 people, including teachers and students of schools near the river, had to be hospitalised. They struggled to breathe and suffered from nausea and fainting spells. Such environmental incidents helped spotlight waste management companies tapping into this sector’s long-term demand growth.
One example is SGX-listed, Malaysia-based 5E Resources, which focuses on collecting and treating waste from the manufacturing industry and recycling the by-products for a profit.
Listed in May, 5E Resources has turned in its maiden post-IPO earnings report card, showing the company as well plugged into a growth trend. With the IPO funds raised but yet to be used, the company is poised to step up its growth pace ahead.
For its 1HFY2022 ended June, 5E Resources reported that revenue was up 34.4% y-o-y to RM32.7 million ($10.1 million). Along with higher other gains, interest income, and lower administrative expenses, the company clocked up a 186.5% y-o-y surge in earnings for the first-half period to RM6.2 million.
The company’s primary business is the scheduled waste management segment, which posted revenue growth of 39.5% y-o-y to RM26.5 million for 1HFY2022, contributing to 81% of the company’s revenue share. Its two other business segments enjoyed growth as well. The second largest segment— the sale of recovered and recycled products — reported revenue growth of 19.6% y-o-y to RM5.5 million, contributing 16.8% of total revenue.
CEO Lim Te Hua explains that the sale of recovered and recycled products segment is closely tied to the scheduled waste management segment because, by association, the more waste that is collected, the more recycled products and materials can be recovered.
Chemicals trading, the third and smallest segment, is its so-called legacy business that focuses on trading chemical products plus providing maintenance services for wastewater treatment plants. This segment contributed just 2.2% of revenue share but recorded a growth of 14.3% y-o-y to RM0.8 million.
From the IPO, proceeds of some $8 million have been raised. According to Lim, the funds have yet to be utilised because of the disruptions triggered by the pandemic. As indicated, the funds are to help acquire an off-site storage plant in central Malaysia to support its expansion there, as well as for investments in equipment, future collaboration and general working capital. Lim explains that the acquisitions take time to be executed. Economies have opened up only recently, and the company is working towards these goals. Lim also notes that the regulatory approvals for the funds to be released will also take some time.
Nevertheless, the company is staying focused and pushing on with its growth strategy. “We believe having a base there [in central Malaysia] will enable us to be closer to our existing customers. This will also help us improve our competitive edge, which will enable us to eventually attract more new customers,” says Lim.
Apart from the company’s foray into central Malaysia, it is also expanding its current operations in Pasir Gudang. The company has signed a new lease agreement for a five-acre plot of land located just behind its existing plants that are primarily used for waste treatment and recycling.
With the additional space, the company intends to have a centralised transport hub for its fleet of trucks, and expand its warehouse space to store its recycled and recovered products. The company also has plans to further its capabilities by adding a new plant to focus on treating high organic content from the petrochemical industry, an area that the company is venturing into.
Lim explains that Malaysia is a large petrol hub, and given how the oil and gas industry is such a major producer of high organic waste content, there will be plenty of work for companies like 5E Resources, which has budgeted some $2.2 million out of its total IPO funds raised to invest in specialised machinery to handle the process and enhance its production efficiency. “We are focusing on increasing our capacity in line with the industry’s increasing organic waste content,” says Lim.
There are some 100 scheduled waste service providers in Malaysia and while this sounds like a crowded field, 5E Resources believes that as the fifth largest player, it is well poised to capture a bigger slice of the growing market. It is one of the very few companies licensed to handle over 30 waste “codes” (how the various waste types are classified).
The company is in the midst of securing even more codes, which will allow it to collect, transport and treat more types of scheduled waste, clearing a more visible growth path ahead, says Lim.
Thus far, investors have not been exactly enthusiastic about this stock. It was offered at 26 cents at its IPO, and last traded at 22 cents on Sept 6, valuing the company at about $33.2 million.
Photo: 5E Resources