PETALING JAYA: Kumpulan Kitacon Bhd
’s stock price has been assigned a fair value of 96 sen by PublicInvest Research, translating into a 41% premium over the initial public offering (IPO) price of 68 sen per share.
In a note, the research unit said the fair value of 96 sen for the construction group is based on an eight times price-earnings (PE) multiple to Kitacon’s financial year ending Dec 31, 2023 (FY23) estimated earnings per share of 12 sen.
“We select MGB Bhd and Inta Bina Group Bhd as Kitacon’s peers given their expertise in landed residential construction,” said PublicInvest Research, adding the fair value is justifiable given that Kitacon’s market capitalisation is comparable against its peers, and it also has a formal dividend policy.
Kitacon’s market capitalisation would be RM340mil, based on its IPO price of 68 sen.
It is en route to a listing on the Main Market of Bursa Malaysia on Jan 17, and intends to pay dividends of at least 25% of its annual net profit. The research house noted Kitacon’s growth drivers include the continual bids for construction projects, and the setup of its own aluminium formwork systems’ storage and refurbishment facility.
Stock catalysts may include government initiatives to stimulate the economy and addressing the property overhang issue, incentives to facilitate growth in the construction industry, a favourable interest rate environment, steady growth of loan for construction activities, and a growing population in the country.
PublicInvest Research pointed out that Kitacon had continued to leverage on township developments and is focused on markets in Selangor, Negri Sembilan and Johor.
Since 2017, the group had started using the aluminium formwork system for its construction projects.
“We believe the aluminium formwork system would give some savings in the form of work efficiency thus allowing efficient progressive billings,” the research unit said, noting it had helped Kitacon sustain a 10% to 12% margin at pre-tax level for FY20 and FY21 amid the Covid-19 pandemic.
As at Nov 30, 2022, Kitacon has 29,017 sq m of aluminium formwork systems, which are deployed in 19 out of 35 of its ongoing building construction projects.
The group had earmarked RM18mil from the IPO proceeds to buy 25,000 sq m of aluminium formwork systems progressively over 36 months upon listing, to support its expansion.
A total of RM20mil would be used for the purchase of a three-acre parcel of land to build a storage and refurbishment facility with a built-up area of 65,000 sq ft.
It will be a centralised storage and refurbishment facility to house all its aluminium formwork systems together with other construction equipment including scaffoldings and cabins that are not in use at its construction sites. PublicInvest Research also noted that prior to its IPO, Kitacon is in a net cash position, with a cash pile of RM82.9mil.
“Post-IPO, Kitacon’s net cash position is expected to widen to 0.8 times, assuming a cash pile of RM316.2mil. No IPO proceeds will be used to pare down its borrowings,” said the research unit.
Meanwhile, Kitacon’s FY22 estimated core earnings is expected to hit RM56.7mil, representing a jump of 35.2% on the back of higher revenue recognition in the second half of 2022. As of Nov 30, 2022, the group has an unbilled order book of RM912.8mil which provide earnings visibility of two years based on its FY21’s construction revenue of up to RM455.5mil.
Going into FY23, core earnings are expected to grow 5.1% on the back of RM700mil order book replenishment and reduction in finance cost, assuming that Kitacon will trim down its debt by RM1.2mil.
