PETALING JAYA: Signature International Bhd’s proposed acquisition of a 51% stake in Space Alliance Contracts Sdn Bhd for RM15.3mil cash is seen as a positive move by TA Securities Research.
The research unit explained that the acquisition will raise the kitchen cabinet and wardrobe manufacturer’s total order book and tender book by RM83mil and RM500mil, to RM480mil and RM1.2bil, respectively.
Also, Signature International will be able to bundle the fit-out works now, which it usually leaves out due to the lack of expertise.
In December 2021, Signature International had proposed the acquisition, which is expected to be completed by the second quarter of 2022, to expand into a full-fledged design and build interior fit-out company.
Space Alliance is a Grade 7 contractor registered with the Construction Industry Development Board. It is principally engaged in building construction and renovation works of corporate offices, hospitality facilities, residences, public amenities and others.
TA Securities Research also noted that Signature International will support Space Alliance to start a business segment to focus on retail customers, who will be able to buy not only the kitchen and wardrobe systems but also interior fit-out works at any Signature outlets soon.
Space Alliance completed several notable projects in the past, including Double Tree Hotel at I-City, Affin Bank @ TRX, TRX Hotel, MyTown, and Ikea Batu Kawan.
Space Alliance recorded FY18 (financial year ended Dec 31, 2018) and FY19 profits of RM5.4mil and RM5.2mil, respectively, before the Covid-19 pandemic, which caused a loss after tax of RM266,487 in FY20.
TA Securities Research said this implies an acquisition price-to-earnings of 5.8 times FY19 earnings or normalised profit of RM5mil per year.
Meanwhile, based on Space Alliance’s total shareholders’ fund of RM17.1mil as at December 2020, the acquisition price-to-book ratio works out to 1.8 times.
TA Securities Research has raised its 18 financial months ending Dec 31, 2022 earnings projections by 6.8% and FY23 (financial year ending Dec 31, 2023) and FY24 earnings by 14.2% and 21.1% respectively, to factor in contribution from Space Alliance.
Based on Space Alliance’s orderbook of RM83mil, the research unit estimates the 51%-owned subsidiary to contribute RM3.4mil to RM7mil to the group during FY22 to FY24.
The research unit also pointed out that as at September 2021, Signature International’s order book stood at RM396mil, comprising RM199mil for kitchen and wardrobe system and RM197mil for glass and aluminium works. According to management, Signature International’s existing order book remains strong on the back of encouraging project replenishment rates.
“The pace of project executions has picked up strongly since late 2021 and the group has plenty to do this year to pick up the slack,” said TA Securities Research, which added that Signature International’s net cash is expected to grow to RM93.8mil, or 32 sen per share, after the cash proceeds of RM54.6mil from the sale of three parcels of freehold land at Bandar Enstek, Negri Sembilan.
TA Securities Research opined that although Signature International remains tight-lipped on a potential special dividend, there might be a special dividend announcement in the second half of 2022 given the group’s substantial cash pile of RM78mil after acquiring Space Alliance.
TA Securities Research said given the potential upside of 14.8%, it has upgraded Signature International to a “buy” from “hold” previously, and raised its sum-of-parts valuation higher to RM1.50 per share from RM1.35 previously after the earnings revisions.