Rakuten Trade Research Reports

Kumpulan Kitacon Bhd - Attractive Valuations

Publish date: Thu, 17 Aug 2023, 09:21 AM
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Kumpulan Kitacon (Kitacon) principally provide a complete spectrum of services ranging from project management, planning and construction involving township developments. With the ongoing recovery in the local economy, we reckon Kitacon to stage a rebound in FY23 supported by its remaining orderbook amounting to RM759.3. BUY with TP of RM0.99 based on 10x PER (30% discount to Construction Sector PER given its smaller market capitalisation) over FY24 EPS.

Kitacon is a G7 building construction contractor involved in the construction of residential and non-residential buildings. Presently, the company has numerous ongoing township development namely Bandar Bukit Raja, Bukit Jelutong and City of Elmina by Sime Darby Property Group; Tropicana Aman by Tropicana Aman SB and Serene Heights by Symphony Hills SB with a remaining orderbook of RM759.3m

To expand its business, Kitacon is buying an aluminium formwork system and build a storage and refurbishment facility. This facility will hold all the aluminium formwork systems, scaffolding, and cabins that are not currently in use at construction sites. With these facilities, Kitacon aims to enhance its operational efficiency and bring cost savings to the company.

Management guided that the near to mid-term outlook of the company is positive. Despite the uncertain macroeconomic and geopolitical environment, Kitacon’s business is well-positioned, and the gradual return of foreign workers will alleviate labour shortages. Furthermore, the reduced prices of foundational metals like steel and aluminium, coupled with other essential construction materials such as diesel and bitumen due to weaker oil prices, will also bring down costs. As a result, overall margins should gradually improve as projects with lower margins are phased out and replaced by new projects adjusted for the higher input costs.

We expect Kitacon to register net earnings of RM45.2m and RM49.4m for FY23 and FY24 respectively, backed by a strong unbilled orderbook of RM759.3m as at 31st March 2023.

Kitacon is targeting to pay dividend of 25% from its net profit. Based on our estimates, the company is expecting to pay dividend of 2.3sen and 2.5sen per share for FY23 and FY24, translating into yield of 3.5% and 3.8%. Balance sheet is healthy with net cash of RM74.6m as of 1QFY23.

Source: Rakuten Research - 17 Aug 2023

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