Jati Tinggi Group Berhad (JTGROUP, 0292) will be making its debut on Bursa ACE Market today. The company principally provides engineering services and solutions for underground and overhead utilities, focusing on the transmission and distribution stages of electricity supply. Premised on its (i) existing sizable orderbook (ii) potential to be a key solution provider in the National Energy Transition Roadmap (NETR); (iii) gradual evolution into a main contractor, we expect JTGROUP to register core net earnings of RM5.6m and RM10.8m for FY23 and F24 respectively. BUY with a FV of RM0.38 based on 14x over FY24 EPS, slight discount to its listed peers on Bursa Malaysia due to its smaller market capitalisation.

As at 31 Oct 2023, JTGROUP’s orderbook stood at RM233.25m and management expects progressive recognition of the unbilled order book over the next 1–3 FYs. Going forward, we foresee more rapid (due to lesser variation orders & extensions of time) and profitable progress completion for its ongoing projects.

According to IMR Report, Tenaga Nasional (“TNB”) plans to invest a total of RM90.0bn into Malaysia’s grid over the next 5 years, doubling the RM46.0bn for CY18–CY24 period in a bid to support Malaysia’s NETR. As such, JTGROUP stands to potentially benefit from more contracts since its top 3 major customers are mainly the main contractors appointed by TNB.

With >19 years of working relationship with its top three customers, there are collaboration agreements signed that provide JTGROUP the first right-of-refusal to accept projects offered by these customers. This simply illustrates JTGROUP will be a prime beneficiary of the NETR even before we factor in its expansion into East Malaysia, having inked an MoU with a Sarawakian company involving in civil and structural consultancy works.

JTGROUP is also gradually evolving being a subcontractor into a main contractor, which allows for JTGROUP to tender for larger projects and improve its profitability. To achieve this successfully, JTGROUP needs to (i) demonstrate project track record, (ii) availability of technical personnel & machineries, and (iii) financial strength. While JTGROUP is already competent in the former two, we believe the company will enhance its financial standing by utilizing RM7m from its IPO proceeds to reduce borrowings and RM7.3m to fund its working capital.

JTGROUP plans to distribute a dividend of up to 20% from its net profits contingent on its future earnings translating to a potential yield of 2%. Post listing, the group’s net gearing ratio is expected to improve to 0.5x from 0.76x.

Source: Rakuten Research - 20 Dec 2023

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