Eren Thinks

IPO- Kejuruteraan Asastera Berhad- a glimpse analysis

Erentitan
Publish date: Wed, 08 Nov 2017, 09:39 PM
fundamental research

 

Details of IPO

 
Money raised from the IPO:  RM20 mil
new shares issued: 80 mil
Offer price per share RM0.25
Total shares offered 112 mil
Market Capital Upon Listing RM 80 mil
Enlarged no  of shares 320 mil
Stock name KAB
Principal adviser/sponsor/underwriter Mercury Securities Sdn Bhd
 
Financial Advisor BDO Capital Consultants Sdn Bhd

Principal Business of KAB

We are principally involved in the provision of electrical and mechanical engineering services. Our customers are primarily contractors, project owners and property developers in Malaysia's construction industry. Our Capabilities are in:-
-High voltage and low voltage electrical and distribution systems.
-Fibre-to-the-home (FTTH) cabling
-Maintenance services
-Lighting and earthing works
-ventilation and air conditioning systems
-extra low voltage(ELV) systems
Electrical engineering services is our core business activity. However, we also provide mechanical engineering services. Besides, we further derive revenue from sales of goods that are used in our projects.
 

IPO Proportion According to Investors

 
  million %
Retail offering 16 14%
eligible persons                           8 7%
private placement                         88 79%
Total shares offering                      112

100%

comment: the IPO favors institutional investors, considers as long term investors, rather than retailers.With IPO this year is rather sluggish, small offering like this would normally excite retailers, but looking at tiny portion is available to them is rather upsetting

 

Important dates of the IPO 

 
Open date 10am 30 oct 2017
closing date 5pm 7 Nov 2017
Balloting  09/11/2017
Allotment of shares 15/11/2017
Listing date 17/11/2017

Dilution impact to new shareholders

Shareholders Equity b4 IPO                18,967
Shareholders Equity after IPO                38,967
NAPS before IPO 0.1218
NAPS after IPO 0.1108

comment: Dilution effect is caused by the new issuance of shares is priced at above book value per share

Utilisation of proceeds

RM ' 000 %
working capital                12,100 60.5
Capital expenditure                   2,200 11
new branch office                      600 3
Repayment of debt                   1,600 8
Listing expense                   3,500 17.5
                 20,000 100

comment: The money raised from the IPO is rather small at only RM20 million. Out of this, more than half of the proceeds would be used to fund working capital since in the construction industry there is a requirement for deposits and bonds before the tender would be given to the successful applicant. But, since the IPO is small, substantial money from the proceeds would be used to cover the listing expense, which in my opinion is too high proportion. 

 

Substantial shareholders control 65% of the company shareholdings

 
      000 %
Dato'Lai Managing Director 196000 61.25%
Choong GS Executive Director 12000 3.75%
Feraus bin mahmood Non Executive Chairman 100 0.03%
Lu Chee Leong Non Executive Director 100 0.03%
Tong Siut Moi Non Executive Director 100 0.03%

 

Industry Outlook for M&E Engineering Services

         
SMITH ZANDER projects the M&E engineering services industry to grow further from RM62.5b in 2016 to RM93.8b in 2019, based on awarded project value, at CAGR of 14.5%. Growth in the industry is anticipated to be driven by recovery in construction activities as a result of private investments and government policies to spur growth in the construction sector and socio-economic development. Major government related mega projects namely Tun Razak Exchange,  Bukit Bintang Commercial Centre, Kwasa development and Bandar Malaysia development would spur the construction industry in coming years which in turn increase demand for M&E engineering services

 

Selective Financial Figures      
  2014 2015 2016
Revenue                56,954            87,098           93,124
Profit                   3,875              4,548             6,555
GP Margin                         16 13.000% 17.1
NP Margin 6.8 5.20% 7
EPS                           1 1.42% 2.05

 

Segmentation of Revenue 2016 (RM'000) %
Electrical                80,753 86.7
FTTH 2822 3
ELV 2959 3.2
Mechanical 0 0
  93124 100

 

Comparison with Peers Listed on Bursa Malaysia

 

FYE

Market Cap '000

Revenue

NPM

GPM

OPM

NAPS

D/E

Cash

P/BV

PE(FYE)

FYE P/S

EPS (sen)

Pasukas Berhad

31-Dec-16

         125,794

          62,834

-10.40%

8.5%

-10.3%

0.112

0.34

     18,241

1.380

-        8.07

1.249

-1.920

Kejuruteraan asastera

31-Dec-16

           80,000

          93,124

6.50%

17.1%

10.9%

0.122

0.33

        5,295

2.053

12.20

0.859

2.050

LFE Corporation Bhd

31-Jul-17

           47,430

13,621

-12.47

4.6%

-2.8%

0.240

0.03

           199

1.063

  27.7

        3.482

-0.091

Bintai

31-Mar-17

           53,205

682,789

-2.04%

8.1%

-1.4%

0.230

2.65

     63,071

0.804

-        4.72

0.078

-3.920

Note: LFE was a PN17 company and uplifted from the status on 6th Jan 2017. Another peer, YFG Berhad is still a PN17 status company and hence is not being compared. 

 

Remaining Order Book

2017: RM77.96 mil
2018: RM107.32 mil
2019: RM31.64 mil

 

CONCLUSION

Among Bursa listed M&E engineering services companies, Bintai is the leader in revenue generation, but due to thin gross margin and high overhead cost the company suffer losses. Meanwhile, KAB is at second place in revenue ranking and together with prudent and effective cost control, KAB is able to generate profit at net profit magin of 7%. Out of all peers listed in Bursa, KAB is the only one making profit for the latest FYE. Outstanding order book is relatively high and would keep the company busy for the rest of the year while there is still room to secure more contract package. KAB is able to generate consistent earning growth for the past few years and still able to keep gearing ratio at managable level. All this factors coupled with bright outlook in M&E engineering services in near future should be enough to place KAB valuation at premium compare to peers.  However, the IPO price of RM0.25 per share is equivalent to two time book value and PE ratio of 12 times, which is at premium compare to peers. Hence I would conclude that the offer price is already price in all positive factors the company and the IPO price is at Fair Value.

 

Disclaimer:

Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The writer does not own or have any intention to buy the abovesaid stock.

 

 

 
 
 
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