Entrepreneur-led Contractor

• Managing Director (MD) and major shareholder, Dato’ Ir Tee Chai Seng has been operating in the Malaysian construction industry for >35 years.
• He acquired TCS in 1998 and started as a subcontractor carrying out civil and structural works in townships. TCS expanded into building construction undertaking works for major property developers such as IJM Corporation, SP Setia, Tropicana and UM Land.
• TCS Achieved a 3-year Earnings CAGR of 45% in 2017-19.
• Its 2019 PER of 5.3x based on an IPO issue price of RM0.23, is lower than the listed small construction companies average PER of 9.9x.

Established Contractor

TCS has been operating in the construction industry in Malaysia for about 21 years, carrying out selected civil and structural works in townships and land property developments such as the building of roads, water and sewerage treatment plants, water tanks and reticulation systems with contract values of less than RM20m. Since 2013, TCS began to undertake larger building construction projects, namely Saujana Avenue and Saujana Prima, with contract values of RM44.6m and RM39.3m respectively, as the main contractor. The customers for these two projects are property development companies, of which its MD was a director and is still a shareholder. Subsequently, it has completed 6 major projects for nonrelated customers with a total contract value of RM321.9m.

Order Book of RM463.8m With Current Tenders Worth RM2.13bn

TCS has an order book of RM463.8m, equivalent to 1.3x its 2019 revenue. It has submitted tenders for new projects with a total value of RM2.13bn. TCS has good working relationships with major property developers, such as Worldwide Holdings, UM Land and Tropicana, and has received repeat work orders from them.

Competitive Landscape Due to Weak Property Market

Competition is stiff in the construction industry but TCS has a proven track record and good relationship with its major customers. Its MD takes a hands-on approach to ensure effective cost control and implementation of projects. TCS has also expanded its customer network to undertake projects for IJM, SP Setia, Kuala Lumpur Kepong (KLK) and some private companies.

IPO PER Valuation Below Peer Average

TCS’ revenue grew 145% yoy to RM358.4m in 2019, while net profit rose 62% yoy to RM15.7m. At the IPO price, TCS’ 2019 PER of 5.3x is below the listed building contractors peer average of 9.6x and small-cap peer average of 9.9x. Key risks relate to the execution of ongoing projects and ability to replenish its order book.

Source: Affin Hwang Research - 22 Jul 2020