Making its debut on the Main Market today, Tuju Setia Bhd (Tuju Setia) is an established contractor with core expertise in high-rise building construction supported by selectively built reputable clientele. Earnings pipeline are underpinned by growing orderbook of RM1.14bn and set to be the first Main Market listing of the year. Recommend BUY with a target price of RM0.93 based on 11x PER FY21 as per the average valuation of industry peers.

Commenced in 2006, Tuju Setia has more than 15 years of track record as main contractor servicing commercial, residential and institutional buildings mainly in Klang Valley. Tuju Setia excels in building high-rise as core expertise, contributing 80.5% of revenue in FY20 with portfolio of 18 high-rise projects since commencement, totalling to a contract value worth of RM2.2bn. Completed projects include Setia Sky Residences, Setia Walk, TWY Mont Kiara, St. Joseph’s Institution, just to name a few. Over the years, Tuju Setia has slowly been building up clientele portfolio comprising of well-established names such as SP Setia, Tropicana, Symphony Life, Guocoland, Perdana ParkCity and UEM Sunrise.

In 2018, Tuju Setia secured its maiden design and construction project for hospital – Kajang Women and Children Hospital with project value RM204.3m, including procurement and installation of medical equipment as this opens up more avenue for the group, enhancing profitability as hospital project garners significantly higher gross profit margin (18.4%) than non-residential & residential projects (6.2%-7.5%) in FY20. Non-residential contributed 40.5% of sales in FY20, followed by residential (40%) and design & construction and others (19.5%). Current orderbook of RM1.14bn (including latest contract win of RM189m) provides earnings visibility for next couple of years. Tenderbook is at RM4bn with historical winning rate of 20%.

Of the RM56m raised from the IPO, RM24.0m will be utilised to purchase construction machinery & equipment and Building Information Modelling (BIM) system software. Besides strengthening construction capacity via the acquisition of machinery, the BIM system is crucial for projects related to design in line with management’s indication to increase tendering for hospital projects. Meanwhile, RM8.0m is allocated to purchase land for storage facilities.

Tuju Setia has a formal dividend policy of 25%, translating to yield of 3.0% in FY21. The group has been consistently sitting in a net cash position since 2017, providing ample liquidity for more projects. We forecast net profit growth of 160.4% in FY21 and 11.9% in FY22 on construction projects pick up after low base earnings in FY20.

Source: Rakuten Research - 19 May 2021