• Driven by technology, Glostrext will utilise the IPO proceeds to purchase the required instruments and equipment to expand its structural and ground instrumentation and monitoring business into Singapore.

• We expect the net profit to grow by 36.5-37.9% to RM5.6-7.7m for FY24-25f underpinned by the (i) current unbilled orderbook of RM8.9m as well as the growth in the construction sector which is on a recovery path after Covid-19.

• Glostrext is valued by ascribing a P/E of 17x (a premium to KL Construction forward P/E of 14.5x given the superior margins as compared to the peers) tagged to the mid-FY25 EPS of 1.64 sen, leading to a fair value of RM0.28.

Company Background

• The history of the group can be traced back to 24 March 1992 with the incorporation of Spectest, to undertake geotechnical instrumentation services comprising the provision of pile static load test services as structural and ground instrumentation and monitoring services.

• Through Spectest, they have secured the first major service engagement from Bachy Soletanche (M) Sdn Bhd which involved the provision of pile instrumentation services as well as structural and ground instrumentation and monitoring services covering amongst others, piles, pile rafts and basement excavations for the construction of the Petronas Twin Towers.

• They have secured a major service engagement involving a hillside development at Genting Highlands, for the provision of structural and ground instrumentation and monitoring services for the construction of a new hotel and car park building.

• In between 1995-2004, they have provided its services to numerous construction projects, including Pavilion KL, Securities Commission Malaysia and SIDC, LRT stations in KL, KL Sentral, KLIA and MoF office. The customers include Pintaras Geotechnics Sdn Bhd, Econpile (M) Sdn, APG Geo-Systems and others.

• In 2004 and 2009, Glostrext Technology and Glostrext Singapore were incorporated, respectively, and provided its services to notable construction projects within Malaysia and Singapore such as JB-SG Rapid Transit System, New State Court Complex and Jewel Changi Airport.

• They have expanded the service offerings to include the provision of pile static load test services using Bi-directional Static Load Test (BDSLT) and secured mass rapid transit (MRT) projects construction in Singapore (2012) and Malaysia (2013). Some other notable projects include (i) 2017 - Lalaport BBCC and TRX, (ii) 2018 - ECRL, PBH, MRT2, (iii) LRT3.

• Besides, they have setup the laboratory office in Malaysia and Singapore during 2020-2021 and are dedicated for the R&D activities and to calibrate instruments that were used in the operations.

• In 2021, they have secured the first service engagement in Cambodia, where Glostrext Berhad provide BDSLT pile static load test services for the construction of Naga 3 Integrated Entertainment Complex in Phnom Penh.

• In 2022, Glostrext has enhanced the structural and ground instrumentation and monitoring services to begin providing off-site monitoring services through the usage of Glostrext WiNa platform, which allows geotechnical data to be collected and monitored remotely through the internet on a real time basis.

Industry Overview (from Smith Zander)

• Still growing construction GDP in Malaysia. Based on the independent market research report by Smith Zander, the construction GDP growth is projected to increase by 6.1% in 2023 published by MoF in Feb 2023.

• Singapore will be supported by mandatory piling activities. In Singapore, pile load testing for pilling activities and geotechnical monitoring are mandatory for all construction of buildings and infrastructure under the Building Control Regulations 2003, and will be driven by growth and development of the construction and infrastructure sectors.

• Growing awareness due to occurrence of landslides. In recent years, the occurrence of landslides has become more frequent in Malaysia due to soil erosion caused by heavy and continuous rainfall. Hence, the awareness for geotechnical instrumentation and testing services is growing and will continue to drive the demand for geotechnical instrumentation and testing services in the long term.
• Glostrext Berhad’s market share stood at 5.54% and 6.51% for Singapore and Malaysia, respectively.

• Development expenditure (DE) in Singapore and Malaysia are still growing. The Government of Singapore has allocated SGD9.42bn (RM30.05 bn) for the transport subsector stood, while Malaysia has allocated RM17.57bn for 2023 and we believe the trend is still growing.

Investment merits

• Proven track record in the geotechnical instrumentation industry. Glostrext Berhad has about 31 and 14 years of experience in Malaysia and Singapore, respectively. Its involvement in some of the notable projects with stringent technical requirements infrastructure works is a testament of the group to be able to expand further into the competitive Singapore market.

• Experienced team of management. The company is guided by a seasoned leadership, led by its Group Managing Director, Ir Dr Lee Sieng Kai, and Executive Director, Tan Ah Huat with more than 3 decades of working experience in the geotechnical instrumentation and testing industry.

• Technology driven Glostrext WiNa platform. Besides having the on-site monitoring services, Glostrext Berhad will be able to carry out off-site structural and ground instrumentation and monitoring services by using Glostrext WiNa platform. It reduces labour required on-site and able to reflect real time structural health and geotechnical conditions of the site, leveraging on a series of sensors including IoTenabled sensors and third-party data visualization software for remote and real time monitoring.

Financials

• Slowdown in FY23. Glostrext recorded revenue of RM21.6m (-18.7% YoY) and its net profit fell 39.1% due to (i) high base effect following the resumption of construction activities in FY22 and (ii) a slowdown in number of service engagement and lower revenue from the from the pile instrumentation and static load test services in Singapore.

• Likely to grow with its expansion plans. However, we forecast Glostrext’s revenue to grow at 31.7% and 28.1% to RM28.5-RM36.5m for FY24-25f supported by (i) RM8.9m unbilled orderbook and (ii) orderbook replenishment at RM24-32m for FY24-25f, respectively. Thus, we project its net profit to grow at a rate of 36.5-37.9% to RM5.6-7.7m for FY24-25f.

Valuation

• At the IPO offer price of RM0.19, Gloxtrext is trading at P/E of 18.8x based on FY23 EPS of 1.0 sen. Meanwhile, Glostrext’s forward P/E for FY24-25f are estimated at 13.8x and 10.0x, respectively.

• We arrived at our fair value of RM0.28 (46.9% potential upside from its IPO price) by ascribing a target P/E of 17.0x (discount to FBMACE’s P/E of 32x) to our forecasted mid-FY25f EPS of 1.64 sen, which is premium towards the KL Construction forward P/E of 14.5x as Glostrext has been registering superior margins as compared to the peers; ranging from 13.2-25.4% during FY20-23.

Source: Mplus Research - 15 Aug 2023