Financial Highlights

The following table sets out the financial highlights based on the historical combined financial statements for the Financial Years and Period Under Review and FPE 2022.

• The revenue increased from RM 73 million in FYE 2020 to RM 94 million in FYE 2022. While the increase may not be substantial, it still signifies expansion in market share within this industry.
• The gross profit margin increased from 16% in FYE 2020 to 24.07% in FYE 2022. This increase in the GP margin is primarily attributable to the rise in cooling energy management services. (Generally, a GP margin of 20% is considered high/ good).
• The PAT margin has consistently remained near 7% every year.
• The gearing ratio was 0.15 in FYE 2022, which is under the healthy range. This will strengthen the company's ability to face financial crises. (A good gearing ratio should be between 0.25 – 0.5).

Major customers and supplier

Major Customers

The top 5 customers for the Financial Year 2022.

According to the table, the top 5 customers contribute 39.17% of the company's revenue. The range of contribution from these top 5 customers, between 5% to 9%, signifies an equilibrium. The management mentioned they are not dependent on any single customer due to the following reasons:

(i) Most customers engage on a project-based model, meaning the company will not generate additional revenue from them unless new projects are secured.

(ii) Additionally, some customers have long-term contracts scheduled to expire in January 2028 and January 2037.

Major Suppliers

The top 5 suppliers for the Financial Year 2022.

The total purchases from the top 5 suppliers account for 43.08%. The management mentioned that the company is not dependent on these suppliers for several reasons:

(i) The company is brand-independent regarding cooling energy systems, allowing them to operate without being tied to any specific third-party brands or suppliers.

(ii) The company does not rely on any of these suppliers for specific materials or services.

(iii) Additionally, the company has engaged 9 different subcontractors in Malaysia to provide mechanical and electrical works.

Industry Overview

In Malaysia, the construction of cooling energy systems is part of the specialized construction industry, encompassing electrical installation, plumbing, heat, and air conditioning installations, among other areas. Between 2020 and 2022, the value of completed construction work in the electrical installation segment experienced a Compound Annual Growth Rate (CAGR) of 20.6%. Similarly, the plumbing, heat, and air-conditioning segment also saw growth, with a CAGR of 19.1% during the same period. This growth in both segments was partly attributed to the implementation of small-scale projects (Source: Bank Negara Malaysia (BNM)). For the first 9 months of 2023, the value of completed construction work in the electrical installation segment grew by 18.4%, while the plumbing, heat, and air-conditioning segment grew by 50.1% compared to the corresponding period in 2022 (Source: DOSM).

KJTS Group is engaged in providing cooling energy, cleaning, and FM services, all integral parts of the support services for buildings, which also encompass landscape activities. In Malaysia, the gross output value for services related to buildings and landscape activities has exhibited a Compound Annual Growth Rate (CAGR) of 1.5% between 2017 and 2021. This positive growth trend offers opportunities for operators in the provision of building support services.

In Singapore, the operating revenue of cleaning services experienced a decline between 2018 and 2020 but rebounded, achieving a growth of 0.6% in 2021. Since September 2015, all licensed cleaning businesses in Singapore have been mandated to implement progressive wages for local cleaners who are Singapore citizens or permanent residents, following the Progressive Wage Model (PWM). Between 2023 and 2028, the basic monthly wages of all local outsourced cleaners will undergo yearly increases every July. Starting from September 2022, progressive wages have been extended to encompass local in-house cleaners (Source: Ministry of Manpower, Singapore). Furthermore, eligible local outsourced and in-house cleaners are entitled to a bonus of at least two weeks of basic monthly wages annually. These initiatives impact operational costs for service providers in Singapore's cleaning industry, including KJTS Group. To aid employers in adapting to these wage increases, the Singapore government has introduced the progressive wage credit scheme, co-funding eligible wage increments from 2022 to 2026. This measure supports employers in meeting the mandated wage requirements imposed under the PWM.

Market Size and Share

Source: Vital Factor Consulting

Future plans and strategies for KJTS GROUP BERHAD.

The business strategies and plans to grow the business are summarised in the following diagram

The company intends to implement the business strategies and plans listed above between 2024 and 2026, as described in the following sections.

MQ Trader View

Opportunities

1. The company has demonstrated robust financial performance. Despite continuous revenue growth, the company has managed to sustain an increase in gross profit margin, which attests to the capability of its management. Furthermore, the low gearing ratio has provided the company with greater flexibility to navigate various risks, thereby fostering long-term stable growth.
2. The company provides a range of synergistic building support services that they can cross-sell to their customers. The company has synergistic building support services including EPCC and management of cooling energy systems, and provision of cleaning and FM services. In addition, they can provide a range of value-added services to support the operations of its customers such as life cycle asset management of machinery and equipment.

Risk

1. The business relies on securing new contracts for its growth, and failure to secure projects on time may impact its future financial performance. Due to the company's focus on contract-based or one-time projects, it doesn't depend on specific clients. Nevertheless, this also means that the company needs to continuously seek new orders to sustain its growth in performance.
2. The company faces liquidity risk, primarily due to negative net cash flow resulting from financing the construction, upgrading, or retrofitting of cooling energy systems. In cases where customers are unable to pay in cash, the company may accept payment through contra arrangements.

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

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