TCS Group Holdings Bhd (TCS) is principally involved in the provision of construction services for buildings, infrastructure, civil and structural works in Malaysia. The group participates in construction projects either as a main contractor, principal subcontractor or a subcontractor. Under building construction, TCS has experience in both residential and commercial buildings. The group's experience in residential buildings includes terrace houses, bungalows, high rise apartments and condominiums. For commercial buildings, its experience covers shop offices, a shopping complex as well as purpose-built buildings such as GEMS International School Project. Furthermore, TCS's service extends to cover civil works such as roads, water and sewerage treatment plants, electrical substations, water tanks and reticulation systems for townships.

Moving forward, TCS intends to remain focused on its business as a pure play construction company by focusing on high rise residential and commercial projects, and to venture into infrastructure construction services. We derive a fair value of RM0.27 based on a 7x PE multiple to its FY2021F EPS of 3.8 sen. The IPO is expected to raise approximately RM20.7m from the issuance of 90.0m new shares. Besides utilising 62.8% of the proceeds to purchase new construction machinery and equipment in order to enhance its capability to tender for large scale projects and cater for new projects secured, 20.3% of the proceeds are allocated as working capital for its construction projects, earmarking future growth.

• Growth drivers. TCS’s growth will be dependent on: i) successful tenders for high rise buildings, purpose-built buildings and institutional building construction projects, ii) expansion of its infrastructure construction services to include major roads, highways and bridges, and iii) purchase of new construction machinery and equipment to enhance its capability to tender for large scale projects and cater for new projects secured.

• Competitive strengths. TCS’s competitive strengths include: i) being committed in maintaining good quality in its projects, ii) well management and on time completion of project, iii) established working relationships with its customers, suppliers and subcontractors, and iv) having an experienced management team.

• Catalysts. Key drivers may include: i) government-led initiatives and spending, ii) favourable interest rate environment, iii) more participation from the private sector via funding and investment structures, and iv) steady population growth.

• Key risks. Key downside risks, among others, include i) competitive industry, ii) dependency on property sector, iii) dependency on foreign workers, iv) fluctuations in prices of construction materials, and v) dependency on the services of its subcontractors

Source: PublicInvest Research - 10 Jul 2020