Kumpulan Kitacon Bhd (KITACON) is a G7 building construction contractor involved in the construction of buildings in Malaysia. For the FY19 up to 6MFY22 financial period, KITACON carried out construction works for both residential and non-residential buildings. Residential buildings mainly consist of landed properties such as terrace, semi-detached and detached houses, cluster houses as well as townhouses, while non-residential buildings include commercial buildings such as shop offices and shopping mall, industrial buildings, purpose-built buildings such as sales gallery and clubhouse, as well as institutional buildings in the likes of school. For the stipulated financial period, a small proportion of KITACON's revenue was derived from other related services such as earthworks, roadworks, hoarding works, rectification works, piling works and infrastructure works.

Purchasing aluminium formwork systems to support its expansion of the scale of construction work, KITACON will continue to focus on the group's core competency in building construction. Besides that, KITACON intends to acquire a piece of land and construct a centralised storage and refurbishment facility to house all its aluminium formwork systems together with other construction equipment. We derive a fair value of RM0.96 based on an 8x PE multiple to its FY23F EPS of 12sen. The IPO is expected to raise approximately RM51.7m from the issuance of 76.1m new shares. Besides utilising 6.3% of the proceeds for working capital requirements, 46.4% and 38.7% of the proceeds are allocated for purchase of construction equipment as well as purchase of land together with construction of a storage and refurbishment facility, respectively.

• Growth drivers. KITACON’s growth will be driven by: i) continual bid for construction projects, and ii) setup of its own aluminium formwork systems' storage and refurbishment facility.

• Competitive strengths. KITACON’s competitive strengths include: i) established track record, ii) specialty in township construction, iii) emphasis on the quality, iv) established long-term business relationships with its customers, and v) experienced Executive Directors and key senior management.

• Catalysts. Key drivers may include: i) various government initiatives to stimulate economy and address the property overhang, ii) various government incentives to facilitate growth in the construction industry, iii) favourable interest rate environment, iv) steady growth of loan for construction activities, and v) growing population in Malaysia.

• Key risks. Key downside risks, among others, include: i) competition from other construction companies, ii) inherent risk in the construction industry, iii) dependency on a certain group of customers, iv) dependency on subcontractors to carry out certain works for its projects, and v) potential delay in completing construction works.

Source: PublicInvest Research - 9 Jan 2023