PETALING JAYA: Engineering services company KJTS Group Bhd
’s Thailand operation could be potentially double their earnings contribution, supported by growing demand for energy-efficient solutions.
Kenanga Research said contribution in Thailand is expected to increase, with the potential to double over time, supported by growing traction for energy-efficient solutions.
“Following the successful completion of projects at Centara Hotels & Resorts, the pipeline has broadened to include a new shopping mall, hospitals, and high-rise developments,” it told clients in a report.
“Meanwhile, in Singapore, the introduction of the Mandatory Energy Improvement compliance framework imposes penalties on non-compliant buildings, effectively turning energy efficiency into a non-discretionary expense for asset owners.”
As a result, demand for energy-efficient solutions is expected to rise, positioning the group as a natural beneficiary of this regulatory push.
Kenanga Research noted that in its earlier note dated March 6, it highlighted that iHandal Holdings Sdn Bhd – in which KJTS had acquired a majority stake – exhibited erratic profitability over the past five years, drawing a price-to-earnings ratio (PER) estimate of 10 times minus 24 times.
“We now learnt that the profit guarantee on the deal comes up to RM3mil per year for three years, which implies a valuation of just 4.8 times PER, a steep discount to the 12 times minus 15 times PER that engineering companies typically command.
“iHandal’s patented Heatfuse technology can be integrated with utility systems, positioning KJTS as a one-stop solution for industrial heating and cooling efficiency.”
Kenanga Research said this created strong cross-selling opportunities into both existing and potential customers.
It also noted that management highlighted that iHandal’s recent losses were mainly attributable to high financing costs which were higher than conventional bank borrowings.
“With KJTS’ stronger balance sheet and funding profile, management expects the business to deliver healthier returns goingforward and we also note that the deal includes a call option allowing the owner to increase his stake up to 49%, which helps retain and acts as an incentivise to perform.”
Kenanga Research said KJTS also hopes to secure one to two major district cooling projects, each valued at RM100mil to RM150mil in the medium term.
A new target price of RM1.37 (from RM1.30) is derived after factoring in the RM3mil profit guarantee from the iHandal acquisition and equity value based on its sum-of-parts valuation. At last look, KJTS shares were traded at 74.5 sen apiece.
