Recently, KJTS Group Berhad (KJTS, 0293), a leading provider of cooling energy management services, announced that its wholly-owned subsidiary, KJ Technical Services Sdn Bhd (KJTSSB), has successfully secured a contract from Syarikat Takaful Malaysia Keluarga Berhad (STMKB).

Before delving into the details, let us briefly understand the background of KJTS. As per its prospectus, KJTS's journey in the cooling energy sector began in 1984 under the name of KJ Engineering. Today, with over 39 years of experience, KJTS operates across Malaysia, Singapore, and Thailand.

KJTS's core services encompass engineering, procurement, construction, and commissioning projects (EPCC), cooling energy management systems, facilities management, and cleaning services. These services play an important role in various types of buildings such as shopping centers, commercial properties, manufacturing plants, schools, hospitals, and hotels as they require cooling energy, cleaning, and facility management services during their operations.

Furthermore, the emergence of data centers presents opportunities for KJTS. Data centers consume substantial energy during operation, making effective cooling system management crucial and even indispensable to their functionality.

The primary revenue source for KJTS is from its cooling energy management systems business, followed by cleaning services, facilities management, and EPCC. It is worth noting that cooling energy management systems, cleaning services, and facilities management all generate recurring revenue, providing steady income for the company over contract durations ranging from 1 to 20 years. In contrast, EPCC constitutes one-off revenue based on the completion of work during the contract period.

In a noteworthy event, KJTS made its debut on the ACE Market of Bursa Malaysia on January 26th this year, receiving significant market interest with an opening price of RM0.44 per share, marking a 62.96% increase from its IPO price of RM0.27.

Returning to the STMKB contract, KJTSSB will be responsible for the replacement or refurbishment of the cooling system at Menara Takaful Malaysia and subsequent operation and maintenance (O&M) services. According to the contract terms, the refurbishment project is slated to be completed within 8 months, followed by a 10-year period of operation and maintenance services to enhance the sustainability and efficiency of the building's cooling infrastructure.

The contract is valued at RM6.60 million, with RM3.00 million allocated for the refurbishment project, to be paid over 8 months, and RM3.60 million for the O&M services, to be paid in installments over the 10-year service period. According to news reports, the refurbishment project commenced on March 1st and is expected to be completed by October 31st this year. Subsequently, the company will commence O&M services from November 1st until October 31st, 2034.

According to information from investment banks, KJTS may levy charges for cooling water supply to STMKB, estimated at RM1.20 million to RM1.40 million annually. Therefore, the total cost for O&M (fixed plus variable) is projected to reach approximately RM15.60 million to RM17.60 million, exceeding the RM3.60 million stipulated in the contract.

Additionally, it is noteworthy that KJTS will not incur capital expenditures for this contract but will focus solely on refurbishment and O&M tasks. This non-asset ownership approach not only demonstrates KJTS's flexibility but also addresses potential constraints on growth due to capital limitations.

With STMKB becoming a new client, for KJTS, the company now has projects in collaboration with government-linked companies (GLCs). So, can KJTS expect to secure more projects from GLCs in the future? Let's await further developments.

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Disclaimer: The above is purely for educational purposes and reflects personal opinions. It does not constitute any buying or selling recommendations.

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