We are principally involved in the provision of electrical and mechanical engineering services. Our customers are primarily contractors, project owners and property developers in Malaysia's construction industry. Our Capabilities are in:-

-High voltage and low voltage electrical and distribution systems.

-Fibre-to-the-home (FTTH) cabling

-Maintenance services

-Lighting and earthing works

-ventilation and air conditioning systems

-extra low voltage(ELV) systems

Electrical engineering services is our core business activity. However, we also provide mechanical engineering services. Besides, we further derive revenue from sales of goods that are used in our projects.

 

 

	million	%
Retail offering	16	14%
eligible persons	8	7%
private placement	88	79%
Total shares offering	112	100%

comment: the IPO favors institutional investors, considers as long term investors, rather than retailers.With IPO this year is rather sluggish, small offering like this would normally excite retailers, but looking at tiny portion is available to them is rather upsetting

 

Important dates of the IPO
Open date	10am 30 oct 2017
closing date	5pm 7 Nov 2017
Balloting	09/11/2017
Allotment of shares	15/11/2017
Listing date	17/11/2017

Dilution impact to new shareholders

Shareholders Equity b4 IPO	18,967
Shareholders Equity after IPO	38,967
NAPS before IPO	0.1218
NAPS after IPO	0.1108

comment: Dilution effect is caused by the new issuance of shares is priced at above book value per share

Utilisation of proceeds	RM ' 000	%
working capital	12,100	60.5
Capital expenditure	2,200	11
new branch office	600	3
Repayment of debt	1,600	8
Listing expense	3,500	17.5
	20,000	100

comment: The money raised from the IPO is rather small at only RM20 million. Out of this, more than half of the proceeds would be used to fund working capital since in the construction industry there is a requirement for deposits and bonds before the tender would be given to the successful applicant. But, since the IPO is small, substantial money from the proceeds would be used to cover the listing expense, which in my opinion is too high proportion. 

 

Substantial shareholders control 65% of the company shareholdings
			000	%
Dato'Lai	Managing Director		196000	61.25%
Choong GS	Executive Director		12000	3.75%
Feraus bin mahmood	Non Executive Chairman		100	0.03%
Lu Chee Leong	Non Executive Director		100	0.03%
Tong Siut Moi	Non Executive Director		100	0.03%

 

Industry Outlook for M&E Engineering Services
SMITH ZANDER projects the M&E engineering services industry to grow further from RM62.5b in 2016 to RM93.8b in 2019, based on awarded project value, at CAGR of 14.5%. Growth in the industry is anticipated to be driven by recovery in construction activities as a result of private investments and government policies to spur growth in the construction sector and socio-economic development. Major government related mega projects namely Tun Razak Exchange,  Bukit Bintang Commercial Centre, Kwasa development and Bandar Malaysia development would spur the construction industry in coming years which in turn increase demand for M&E engineering services

 

Selective Financial Figures
	2014	2015	2016
Revenue	56,954	87,098	93,124
Profit	3,875	4,548	6,555
GP Margin	16	13.000%	17.1
NP Margin	6.8	5.20%	7
EPS	1	1.42%	2.05

 

Segmentation of Revenue	2016 (RM'000)	%
Electrical	80,753	86.7
FTTH	2822	3
ELV	2959	3.2
Mechanical	0	0
	93124	100

 

Comparison with Peers Listed on Bursa Malaysia
	FYE	Market Cap '000	Revenue	NPM	GPM	OPM	NAPS	D/E	Cash	P/BV	PE(FYE)	FYE P/S	EPS (sen)
Pasukas Berhad	31-Dec-16	125,794	62,834	-10.40%	8.5%	-10.3%	0.112	0.34	18,241	1.380	-        8.07	1.249	-1.920
Kejuruteraan asastera	31-Dec-16	80,000	93,124	6.50%	17.1%	10.9%	0.122	0.33	5,295	2.053	12.20	0.859	2.050
LFE Corporation Bhd	31-Jul-17	47,430	13,621	-12.47	4.6%	-2.8%	0.240	0.03	199	1.063	27.7	3.482	-0.091
Bintai	31-Mar-17	53,205	682,789	-2.04%	8.1%	-1.4%	0.230	2.65	63,071	0.804	-        4.72	0.078	-3.920

Note: LFE was a PN17 company and uplifted from the status on 6th Jan 2017. Another peer, YFG Berhad is still a PN17 status company and hence is not being compared. 

 

Remaining Order Book

2017: RM77.96 mil

2018: RM107.32 mil

2019: RM31.64 mil

 

CONCLUSION

Among Bursa listed M&E engineering services companies, Bintai is the leader in revenue generation, but due to thin gross margin and high overhead cost the company suffer losses. Meanwhile, KAB is at second place in revenue ranking and together with prudent and effective cost control, KAB is able to generate profit at net profit magin of 7%. Out of all peers listed in Bursa, KAB is the only one making profit for the latest FYE. Outstanding order book is relatively high and would keep the company busy for the rest of the year while there is still room to secure more contract package. KAB is able to generate consistent earning growth for the past few years and still able to keep gearing ratio at managable level. All this factors coupled with bright outlook in M&E engineering services in near future should be enough to place KAB valuation at premium compare to peers.  However, the IPO price of RM0.25 per share is equivalent to two time book value and PE ratio of 12 times, which is at premium compare to peers. Hence I would conclude that the offer price is already price in all positive factors the company and the IPO price is at Fair Value.

 

Disclaimer:

Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The writer does not own or have any intention to buy the abovesaid stock.