With its impending listing, Public Investment Bank has provided research note on Jati Tinggi Group giving a fair value of RM0.35, a premium over its RM0.27 listing price.
Through its wholly-owned subsidiary, the group mainly provides underground and overhead utilities engineering services and solutions which primarily support the electricity supply industry in Malaysia.
It also provides its services and solutions to telecommunications, water and sewerage utilities companies, as and when the group secures such contracts/projects. Additionally, JTGROUP is involved in the provision of substation engineering,
procurement, construction and commissioning services, trading of equipment for substations as well as maintenance of street lighting. During the FY20 and 1HFY23 periods, JTGROUP’s major customers comprised mainly the main contractors appointed by Tenaga Nasional Bhd (TNB). Typically, JTGROUP is engaged as a subcontractor for the projects in which the group has been contracted at current stage.
JTGROUP believes that it needs to leverage its current capabilities to progressively assume the role of main contractor (which includes tendering for projects directly with TNB) in infrastructure utilities engineering projects and/or participate in more large-scale projects in the future. On top of its current scale of operations and ongoing projects in Peninsular Malaysia, the group intends to expand geographically to East Malaysia as well, seeking opportunities to undertake additional infrastructure utilities projects there.
The house derives a fair value of RM0.35 based on a 14x PE multiple to its FY24F EPS of 2.5sen. The IPO is expected to raise approximately RM18.0m from the issuance of 66.8m new shares. Besides utilising 38.8% and 40.7% of the proceeds for repayment of bank borrowings and general working capital, respectively, 1.1% of the proceeds are allocated for capital expenditure.
Growth drivers for the group will be driven by establishment of its presence as a main contractor, and ii) geographical expansion to East Malaysia. Competitive strengths include proven track record, project management and delivery enhancement with technology tools, iii) experienced senior management team, and technically competent project team.
Catalysts include growing demand for electricity following economic growth, population growth as well as urbanisation, government initiatives to strengthen accessibility to utilities, opportunities arising from Malaysia’s aspirations for higher adoption of renewable energy, and foreign and domestic investment.
Key downside risks, among others, include competition, inherent risks in power infrastructure utilities market, dependency of some of major customers, dependency of subcontractors, and potential early termination of contracts.
