Specialised building facilities provider
Thu, 11-Jan-2024 09:06 am
by Research Team • Apex Research

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KJTS (0293)

Target Price (RM)

0.33

Recommendation

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Summary

  • KJTS primarily engaged in cooling energy, cleaning, and facilities management (FM) with established presence in regional markets across Malaysia, Singapore, and Thailand.
  • Core earnings are expected to improve from execution of existing unbilled EPCC projects from cooling energy systems segment of RM32.5m and ongoing recurring revenue from cleaning services contracts.
  • KJTS is valued by pegging its FY25F core EPS of 1.7 sen to PE of 19.0x, leading to a FV of RM0.33 (22.2% potential upside from IPO price).


Investment Highlights

  • Complete cooling energy system lifecycle supported by in-house engineering capability. KJTS’s in-house engineering capability is essential for the entire life cycle of cooling energy systems, covering energy audits, conceptualisation, engineering, design, construction, installation, and ongoing operations and maintenance. The self-sufficiency is a strategic foundation for ensuring business and financial sustainability and supports the group's expansion efforts.

  • Established track records across Malaysia, Singapore, and Thailand. With a business history spanning 39 years, the group initiated the cooling energy segment in 1984 through KJ Engineering. Expansion efforts included the acquisition of KJ FEM in 2019, leading to the expansion of cleaning services into Singapore. Furthermore in 2021, the cooling energy segment expanded its presence in Thailand through KJTN Engineering.

  • Fixed fees on operations and maintenance throughout the contract period. KJTS offers fixed fees for operations and maintenance spanning a contract period of 15 to 20 years, setting it apart from independent building maintenance. Unlike scenarios where costs fluctuate due to staff payments and spare parts in independent maintenance, the group's comprehensive approach eliminates uncertainties. Taking full responsibility, KJTS ensures a fixed fee covers operations and maintenance, providing clients with budget certainty over a contract period of 15 to 20 years. Moreover, the group's commitment to incorporating technological advancements further enhances the long-term efficiency and performance of the client's building systems.

  • Experienced team of building support services in the industry supported by executive directors and key senior management. KJTS is guided by an experienced management team led by Managing Director Lee Kok Choon and Executive Director Sheldon Wee Tah Poh, both of whom have extensive backgrounds in the building support services industry. Both are the key senior management, including the Chief Operating Officer, Chief Financial Officer, Head of the Project Department, and Head of the Engineering Department, each contributing approximately 12 to 23 years of experience in their respective industries.

  • Experienced engineers with meticulous engineering analysis, successfully redesigned the system to minimise capex and generate substantial annual operational cost savings for the client The group's engineers played a crucial role in proposing and implementing optimal changes in reduction of capex and achieving an approximate one million in annual operational cost savings. The success of this endeavour rested on the team's proficiency in calculating and demonstrating the benefits, leading to the client's adoption of the new system. Moreover, the group's command center ensures thorough monitoring and data collection, facilitating continuous improvement. This underscores the group's reliance on engineering expertise, experience, and efficient data utilisation for ongoing enhancements in efficiency.


Valuation & Recommendation

  • At an IPO offer price of RM0.27, KJTS’s forward PE valuation for FY24F and FY25F is projected at 18.7x and 16.2x, based on our estimated FY24F and FY25F EPS of 1.4 sen and 1.7 sen respectively. We arrived at our fair value of RM0.33 (22.2% potential upside from its IPO price) by assigning a target PE of 20.0x to the group’s FY25F EPS.
  • The assigned target PE represents a slight discount to selected peers that offer building management services such as AWC, KAB, WIDAD and GFM that are trading at an average forward PE of 22.7x.
  • We like KJTS for their comprehensive building solutions (EPCC, cooling, cleaning, facilities management) that allows the group to cross-sell services across a diverse property portfolio, ensuring their revenue stability and business continuity even amidst sector downturns. Ongoing and continuous efforts in securing new contracts, coupled with improving the recurring income business model will remain a key revenue growth driver. Furthermore, expansion of offices in Malaysia, Singapore, and Thailand will be step up to unleash new market opportunities and fostering business growth.
  • We forecast that dividend yield will increase from 1.1% in FY24F to 1.3% in FY25F, supported by the group's dividend policy of a minimum 20% payout ratio.
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