Investment Merits

• G7 building contractor with more than 30 years of experience
• High quality of workmanship and close relationships with major property developers
• Riding on GDP growth in the Klang Valley
• Robust outstanding orderbook and below-peer valuations

Company Profile

Inta Bina Group (INTA) is a G7 building construction contractor with over 30 years of operating history. The group has completed more than 136 building construction projects with a total contract value of >RM3.06bn, mainly in the Klang Valley and Johor. Its main focus lies in constructing various types of buildings – these include high-rise residential and commercial properties, and industrial as well as leisure units. INTA typically acts as the main contractor for construction projects. In 2023, it launched its first property project via wholly owned subsidiary Angkasa Senuri and ventured into the supply, installation and maintenance of lifts and escalators under the Canny Lift brand.

Highlights

Robust outstanding orderbook. INTA has secured new jobs worth MYR743m up to end-Apr FY24F, including jobs from Tropicana Corporation (TRCB MK) and Avaland (AVALAND MK). Its outstanding orderbook is estimated at MYR1.8bn (cover ratio of 2.7x). We pencil in a target orderbook replenishment of MYR900m for FY24F, bolstered by its tenderbook of MYR6.1bn. This figure is reasonable, since some projects have been pushed back to this year, according to management. Additionally, we learned that INTA has tendered for several design-andbuild contracts, which may yield better margins.

High quality of workmanship. INTA achieved an exceptional 90% QLASSIC score for its Sunway Lenang Heights project, marking a historic milestone as one of the highest scores recorded in Malaysia – indicating excellence in workmanship and construction. It has also forged enduring partnerships with its clientele, which include major property developers such as Gamuda (GAM MK) and Mah Sing (MSGB MK), with which it has enjoyed business relationships exceeding 10 years.

Key focus: Klang Valley. Over 90% of INTA’s revenue is derived from projects in the Klang Valley, allowing the group to capitalise on Selangor’s GDP growth as the Selangor State Government has projected a GDP growth rate of 6.5-7% pa over 2021-2025 under Rancangan Selangor 1 (RS-1). The increasing value of residential property transactions in Selangor and Kuala Lumpur may serve as a growth factor for its orderbook, especially with interest rates peaking.

Foray into new areas. INTA's property division, Angkasa Senuri, launched its first project, Senuri Residence, on 7 Oct 2023 (GDV: MYR204m). The project has proven to be successful, with an impressive 80% take-up rate since its soft launch. The venture presents synergistic benefits as the group is involved in every stage of the development process, ensuring better margins. Additionally, INTA has entered the lift and escalator market under the brand Canny Lift. This move not only capitalises on increased construction demand but also provides recurring income through maintenance services, complementing its project-based construction earnings.

Company Report Card

Results highlights. INTA’s 4Q23 core earnings of MYR6.9m (+10.9% QoQ, +>100% YoY) brought full-year core net profit to MYR23m (>100% YoY). This is supported by the record-high revenue of MYR650.1m (39.4% YoY) achieved in FY23, with a steady recognition of construction progress from ongoing projects on hand. GPM rebounded to 8.1% in FY23 from 6.8% in FY22, as INTA benefited from stabilising material and labour costs, as well as the reduction in work delays caused by unforeseen interruptions such as mandated movement restrictions.

Strong net cash position. INTA has been in a net cash position since FY17 except for FY22, due to increase in overall group borrowings for the funding of Angkasa Senuri, and the higher funding requirement on a few projects with clients that are under an arrangement where payments are made in stages. Nonetheless, its cash and cash equivalent position improved to MYR101.3m in FY23, from MYR49.5m in FY20.

Dividends. While it does not have an official dividend policy, it has been distributing 19-56% of PAT, ranging from 0.75 sen to 0.15 sen per share. That said, we pencil in a conservative 25% payout ratio for FY24-26F – which translates to MYR7-9m in dividend payments.

Management. Managing Director Lim Ooi Joo and Deputy Managing Director Teo Hock Choon are responsible for the overall day-to-day management and formulation of the group’s business plans and strategies as well as overseeing overall operations. Lim started his journey as a resident engineer with the Public Works Department under the Ministry of Health, while Teo began his career in 1982 at Dindings Consolidated as a project coordinator. With over three decades of experience in construction, both have contributed significantly to the group.

Investment Case

Undemanding valuation. INTA’s FV range of MYR0.53-0.60, based on a target P/E of 8-9x on FY25F earnings. This factors in a 31% discount to the Bursa Malaysia Construction Index’s 5-year mean P/E of 13x and is at a 22% discount to the local peer average of 11.5x, to account for its smaller market cap. The target P/E is within the 8-10x range ascribed to most small-cap contractors under our coverage. We believe the target P/E is justified – premised on its sturdy balance sheet, robust outstanding orderbook and successful expansion into the property and lift businesses.

Key risks include weaker-than-expected orderbook replenishment, escalation in material costs, and project delays.

Source: RHB Securities Research - 15 May 2024