KJTS Group Berhad (KJTS, 0293) will be making its debut on Bursa Ace Market today. KJTS specialises in providing cooling energy, cleaning, and facility management services, primarily to the property industry. For the cooling energy segment, the company offers comprehensive services, including energy management, EPCC, and the installation, retrofitting, or upgrading of cooling systems. Our DCF valuation pegs KJTS’s fair value at RM0.30 per share, translating to a FY24E PER of 17x, a slight discount to industry peers due to its smaller market capitalisation.

KJTS is a one-stop solutions provider, specialising in integrated cooling energy systems. The group's unique value proposition lies in guaranteeing operational efficiency throughout the tenure for a fixed fee. With longterm contracts spanning 5 to 20 years, KJTS secures substantial recurring revenue, encompassing 70-85% of total revenue from FY20 to FY22. The potential for revenue growth is further strengthened by cross-selling additional services, especially in mixed-use commercial, office, and hotel contracts.

KJTS is strategically positioned for Malaysia’s rapidly growing data centre (DC) sector. The company is actively pursuing DC projects in key regions. According to TechNavio, the Southeast Asian DC construction market expected to grow by around MYR4bn from 2021 to 2025, indicating a favourable environment for KJTS. In addition, we believe KJTS as a certified ESCO is well-placed for government retrofitting initiatives such as National Energy Transition Roadmap (NETR) to enhance energy efficiency.

As such, we forecast a strong FY22-FY25F earnings CAGR of 22%, driven by the strategic ability to cross-sell a comprehensive suite of services, increased demand from data centres and industrial facilities for cooling solutions, as well as growing awareness of ESG principles related to energy efficiency.

With a resilient financial position, KJTS currently is in a net cash position as at 9MFY23 and is expected to persist post IPO. KJTS also offers a dividend yield of 1% with the target dividend payout ratio of 20%.

Source: Rakuten Research - 26 Jan 2024

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