Ajiya’s order book set to fill up

  • Business
  • Saturday, 02 Jan 2016

Appointment as a major supplier for local housing projects to boost demand

LOW-PROFILE Ajiya Bhd has quietly seen its share price more than double in a year.

From RM2 at the start of 2015, shares of the Johor-based company – which is principally involved in the manufacture and supply of materials used in the construction and building-based industries – rose to end the year at RM4.40 two days ago. That’s outperforming the local equity market that saw a decline of 3.9% last year.

Market observers note that there is further potential upside movement for Ajiya’s shares as the company is set to see its order book escalate over the medium term. This follows the appointment of the company as a major supplier for government-driven local housing projects, in particular, the affordable housing scheme under Perumahan Rakyat 1Malaysia Bhd (PR1MA) .

“Although the local property market in general has turned somewhat softer, there are still many government-driven projects to support growth.

“For Ajiya, being appointment as a major supplier for the PR1MA affordable housing scheme is certainly a boon as that will propel the group’s order book and improve its earnings visibility going forward,” an industry source tells StarBizWeek.

Government projects

Ajiya made a net profit of RM16.76mil, or 24.21 sen per share, for the nine months ended Aug 31, 2015. That represented an increase of 40% from the RM11.96mil, or earnings per share of 17.27 sen, for the corresponding period last year.

During the period in review, the company saw its revenue increase 4% to RM318.5mil from RM307.1mil previously.

Ajiya’s cash position had also improved in the last one year, with cash and cash equivalents totalling RM33.64mil as at the end of August 2015, compared with RM23.89mil a year ago.

In its earlier filings with Bursa Malaysia, Ajiya did note that the prospects of the local building materials sector would remain supported by ongoing government projects, including the development of economic corridors in the country as well as construction works under the Economic Transformation Programme.

Ajiya said it would expect robust demand from the Government for its construction and development projects to translate into revenue growth for the group.

“While real-estate projects in the private sector will likely slow given the weak market sentiment, crucial government projects will still have to go on regardless of the prevailing sentiment as the nation races towards becoming a developed economy in the next five years,” an analyst with a local brokerage points out.

“But most of government projects have already been priced in by the market, so what’s going to make the key difference for Ajiya is the PR1MA housing scheme, which is expected to pick up pace in a big way next year,” he says.

It remains unclear yet as to how much the order from the PR1MA housing scheme could contribute to Ajiya’s bottom line. But with the project expected to accelerate in 2016, as the Government strives to address one of the socio-economic challenges in Malaysia, the outlook for the group has certainly improved.

Recall, in tabling Budget 2016 in October last year, Prime Minister Datuk Seri Najib Tun Razak had announced the Government’s commitment to build 351,500 housing units through various agencies as part of efforts to address the issue of home ownership and affordability pressures in Malaysia.

Among these is a plan to construct 175,000 housing units under the PR1MA scheme in 2016, and the Government has already allocated RM1.6bil for this initiative. Targeted at middle-income earners, who are first-time homebuyers, PR1MA housing units will be sold at 20% below market price.

So far, 200,000 homes have already been approved for middle-income earners nationwide under the scheme, and more are in the pipeline.

“Demand for the group’s production will likely pick up in tandem with the Government’s commitment to build affordable housing projects in the years ahead,” an observer notes.

“This will help support the group’s growth amid what is expected to be a soft property market in 2016,” he adds.

Expansion mode

In anticipation of increasing projects and orders, Ajiya is already preparing to expand its production capacity.

The company completed a private placement exercise at the end of November last year, raising gross proceeds of up to RM29mil based on the issue price of RM4.20 per placement share.

According to Ajiya, one of the main purposes of the fund-raising exercise is to facilitate the company’s plan to expand its operations. Besides that, the exercise is also aimed at strengthening the company’s capital base, and to potentially improve the trading liquidity of its shares.

Ajiya at present operates 10 plants, two of which are located in Thailand, while the remainder are in various states in Malaysia. It notes that part of its expansion plans include extending the group’s existing plant in Sungai Petani, Kedah.

With growth backed by Government projects, the year ahead will certainly be an exciting one for the company.

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