Financial Highlights

The table below sets out a summary of the Group’s key financial highlights based on the Group’s historical audited financial information for the Financial Years and Period Under Review:

• The revenue declined from RM 112 million (FYE 2020) to RM 96 million (FYE 2021) and then increased to RM 234 million (FYE 2022). The main reason for the revenue decline in FYE 2021 might be attributed to the increase in copper prices, as most of the construction materials for the 132kV projects contain copper.
• The gross profit margin declined from 17.63% in FYE 2020 to 7.42% in FYE 2023. The primary reason for the overall GP margin decrease from FYE 2020 to FYE 2022 was mainly due to the decrease in GP margin related to underground and overhead utilities and solutions. The company's failure to accurately estimate the discrepancy between costs and revenue resulted in a year-on-year decline in the GP margin (Generally, a GP margin of 20% is considered high/ good).
• The PAT margin reached its highest point at 7.51% in FYE 2021 and its lowest at 3.89% in FYE 2020.
• The current gearing ratio stands at 0.77 (Before IPO), which exceeds the healthy range. Consequently, the company plans to utilize approximately 38% of the funds from the IPO to settle the bank borrowing and reduce the gearing ratio to below 0.5. (A good gearing ratio should be between 0.25 – 0.5).

Major customers and supplier

Major Customers

The top 5 major customers for FYE 2022 are as follows:

According to the table, the top 5 customers contribute 100% of the company's revenue, with the top 1 contributing over 2/3 of the total revenue. This indicates that the company heavily relies on its major customers and is exposed to high-concentration customer risk. The management mentioned that their major customers primarily comprise main contractors appointed by TNB, and except for Worktime Engineering, YM Teras, and CD Electrical, the group does not depend on other major customers, as its projects with these customers are secured on a contract basis or via purchase orders.

Despite the company having had a long-standing cooperation with its major customers, there is a risk of over-reliance on a single client. If the client reduces their usage of the company's services, it will inevitably harm the financial reports.

Major Suppliers

The top 5 major suppliers comprising the suppliers for construction materials and subcontractors for FYE 2022 are as follows:

The total purchases from the top 5 suppliers account for 70.06%. The company selects suppliers based on various factors, including the availability of materials, quality, pricing, and lead time for delivery. They do not have any long-term agreements or arrangements with any of their major suppliers. This approach allows them the flexibility to source quality products and services at competitive prices.

Industry Overview

According to the research report from Providence Strategic Partners, the power infrastructure utilities market in Malaysia, based on the capital expenditure incurred for recurring electricity generation, transmission and distribution, rose from RM5.7 billion in 2016 to RM9.2 billion in 2022 at a compound annual growth rate (“CAGR”) of 8.3%.

In 2020, the capital expenditure incurred for electricity transmission and distribution was affected by the COVID19 pandemic and the subsequent phases of the movement control order (“MCO”) that stifled economic activity. Between 2022 and 2024, an estimated RM20.0 billion will be allocated in capital expenditure for recurring electricity generation, transmission and distribution in Peninsular Malaysia and Sabah.1 In February 2023, Tenaga Nasional Berhad announced a capital expenditure allocation of RM12.8 billion, from which RM7.0 billion will be for regulated capital expenditure (including energy transition-related capital expenditure of RM1.0 billion) while the remaining RM5.8 billion will be allocated for other major projects.2 Separately in August 2023, TNB announced that it plans to deploy an additional RM35.0 billion between 2025 to 2030 towards upgrading Malaysia’s power grid, to ensure the infrastructure does not become an obstacle in the nation’s energy transition endeavours. This means that Tenaga Nasional Berhad plans to invest a total of RM90.0 billion into Malaysia’s grid in the coming five-year period, double the RM46.0 billion previously allocated for the 2018 to 2024 period.3

The power infrastructure utilities market comprises the capital expenditure for utility systems and related services by industry players that construct generation facilities, transmission and distribution lines, as well as related structures for power utilities. All structures that are integral parts of utility systems are included in this market. The work performed by these industry players includes new installations, additions, alterations, maintenance, and repairs.

Key Growth Drives

1. Long-term economic growth supports investment in utility infrastructure
2. Population growth and urbanisation promote investment in utility infrastructure
3. Growing demand for electricity stimulates investments in new and replacement utility infrastructure
4. Foreign investment and domestic investment growth support investments in utility infrastructure
5. Growing demand for other utilities stimulates investment in new and replacement utility infrastructure
   1. Piped gas
   2. Water and sewerage
   3. Communication services
6. Malaysis’renewable energy generation targets create opportunities for investment in power infrastructure
7. Government initiatives to strengthen utility infrastructure in Malaysia
   1. Electricity
   2. Rural infrastructure
   3. Development of Sabah and Sarawak
   4. Digital connectivity

Source: Providence Strategic Partners

Future plans and strategies for JATI TINGGI GROUP BERHAD.

The Group has, amongst others, the following business strategies and future plans to grow its business:

1. The company intends to participate in more large-scale projects and establish its presence as a main contractor
2. The company intends to expand the business into new markets

MQ Trader View

Opportunities

1. The company intends to expand its business into new markets, specifically aiming to venture into East Malaysia. This expansion aims to capitalize on the region's potential for infrastructure and utilities engineering business opportunities.

Risk

1. The company faces a significant risk due to high customer concentration. A substantial portion of its revenue is heavily reliant on its top three major clients, making the company vulnerable to fluctuations should any of these clients terminate their partnerships. These major customers primarily consist of main contractors appointed by TNB, showcasing a strong dependency on TNB contractors.
2. More than one-third of the funds raised from the IPO were allocated to repay debts. The excessive use of funds for debt repayment suggests that the IPO's primary goal wasn't solely aimed at expanding the business but rather at using market funds to settle debts. This high proportion of debt repayment also highlights the deficiency in the company's management of debt.
3. The company's financial performance is unsatisfactory. Despite annual revenue growth, management has been unable to effectively control costs. This has led to a significant decline in both gross profit margin and net profit margin, despite the increase in revenue. Additionally, the company holds a relatively high level of overall debt, with a gearing ratio as high as 0.77 even before the IPO. This high level of debt diminishes the company's capacity to withstand risks.

Click here to refer the IPO - Jati Tinggi Group Berhad (Part 1)

Community Feedback

We encourage traders to try out and evaluate the MQ Trader system and provide us feedback on the features you like to see in the system. We have received many positive feedbacks so far, and we are currently compiling and reviewing them for possible inclusion into the next release of the system.

We would like to develop this system based on community feedback to cater for community needs. Thanks to all those who have provided valuable feedback to us. Keep those feedback coming in!

Disclaimer

This article does not represent a BUY or SELL recommendation on the stock covered. Traders and Investors are encouraged to do their own analysis on stocks instead of blindly following any Trading calls raised by various parties in the Internet. We may or may not hold position in the stock covered, or initiate new position in the stock within the next 7 days.

Join us now!

MQ Trader stock analysis system uses Artificial Intelligence (AI), various technical indicators and quantitative data to generate accurate trading signals without the interference of human's emotions and bias against any particular stock. It comprises trading strategies which are very popular among fund managers for analysing stocks.

MQ Trader stock analysis system is SPONSORED for MQ Trader members. To use this amazing tool, you can sign up via MQ Trader Sign Up!

Contact us

Please do not hesitate to contact us if you have any enquiry:

Facebook: https://www.facebook.com/mqtrader

Instagram:https://www.instagram.com/mqtrader

MQ Chat: https://messenger.i3investor.com/m/chatmq

YouTube: https://www.youtube.com/channel/UCq-26SGjlQTVQfO7DoEihlg

Email: admin@mqtrader.com