Case Study of Kejuruteraan Asastera Berhad (0193)

By Stella Goh – Market Data Analyst | 12 February 2020  

Overview

Kejuruteraan Asastera Berhad (KAB) is an established Malaysia-based electrical and mechanical engineering company founded in 1997 and headquartered in Kuala Lumpur. KAB specializes in providing comprehensive and one-stop solutions in electrical and engineering services for main contractors, project owners and property developers operating in Malaysia. 

KAB was listed in ACE Market on 17 November 2017. KAB holds a Class A certification (highest electrical contractor certification) from Energy Commission Malaysia and a Grade 7 (highest grade) license from Construction Industry Development Board (CIDB). 

Business Model 

KAB covers all aspects of electrical, mechanical and associated engineering services for both commercial and residential buildings. 

KAB offers installation, testing and commissioning of electrical systems, electrical distribution systems, communication & information technology networks, generator sets, street lighting, lifts and escalators, fire protection, extra-low voltage (ELV) systems, air-conditioning and mechanical ventilation systems. 

The company also derived additional revenue from sales of cables, switches, trunking, pipes and electrical accessories which are required for projects to its sub-contractors. 

Financial Review 

Based on the past 4 financial years of revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2015 (+52.93%), FY2016 (+6.92%), FY2017 (+23.01%) to FY2018 (+21.43%). On a CAGR basis, KAB has grown 25.01% based on 4 years. The increase in revenue was mainly attributed to 54.6% from commercial projects, 43.6% from residential projects and 1.8% from others.

KAB has recorded RM3.415 million increase in gross profit, translating to a growth of 15.55% from RM22 million in FY2017 to RM25.4 million in FY2018. Based on four years CAGR basis, the gross profit has grown 31.29%. The increase in gross profit was due to the rise in demand for electrical & mechanical engineering services specifically in new construction and property projects. 

The Profit After Tax (PAT) of KAB rose 26.58% from RM6.8 million to a new high of RM8.6 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 21.91% which was in line with the growth of revenue and gross profit. 

Cash Flow Statement 

The net cash from operating activities has obtained a positive cash flow of RM1.4 million in FY2018 as compared to RM2 million in the previous year. The decrease in net cash from operating activities was mainly due to the increase in working capital requirements and taxes paid for the group’s ongoing operations. Even though the cash flow is lower in FY2018, the company still has enough cash for business expansion. 

The net cash from investing activities in FY2018 (-RM867,196) was mainly due to the purchase of Property, Plant and Equipment (PPE) of (RM901,144) and acquisition of subsidiary unquoted shares (RM1,052). The negative cash flow indicates that the firm is investing more in its business for growth. (Source: Annual Report 2018) 

The net cash from financing activities in FY2018 (-RM267,314) was mainly due to fixed deposits pledged as securities (RM5.1 million), dividend paid (RM3.2 million), repayment of bank’s factoring (RM2.5 million), repayment of term loans (RM1.9 million) and repayment of finance lease liabilities (RM376,691).  

Is the company able to pay back its liabilities?  

Based on liquidity ratio calculation, KAB has a current ratio of 1.8544 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities if any unforeseeable circumstances occur. KAB is able to do so by using current assets such as contracts, trade and other receivables, deposits & prepayments, amount due from subsidiary companies, deposits with licensed banks, cash and bank balances amounting to RM84.1 million.  

Prospect and Challenges 

KAB has achieved an order book estimated at RM350 million, translating into 2.5 times revenue in FY2018 after winning the job for three blocks of serviced apartment and hotel at Lot 162, Sungai Besi. (Source: TheEdge, 10 January 2020). 

KAB has won a RM20 million electrical installation services contract from Kerjaya Prospek Group Bhd for a hotel, office and serviced apartment project in Kuala Lumpur. The project known as Bloomsvale located at Jalan Klang Lama, which comprises two 53-storey blocks and another 25-storey block has commenced since last week and is expected to be completed by 1 November 2022. (Source: TheEdge, 30 January 2020). 

In early 2018, KAB has set up KAB Technologies Sdn Bhd (KABT) to provide project management and consultancy for upgrading M&E systems for buildings to save on energy costs. KABT will use the data collection devices and the Internet of Things (IoT) such as sensor network and communication modules to gather the building usage data. (Source: TheEdge, 21 January 2020). 

In FY2019, KABT has also entered an 80:20 joint venture (JV) with Resources Data Management Asia Sdn Bhd to develop new technology solutions as well as identify strategic business developments and revenue recognition. (Source: TheEdge, 21 January 2020).  

KAB is also venturing into solar energy generation via the acquisition of 30% stake in Leverage Edge Sdn Bhd (LSB), where the partnership is expected to boost its chances next year in Large-Scale Solar 4 (LSS4) tender. Apart from the energy efficiency solutions and solar energy generation businesses, KAB also provides combined heat & power co-generation, waste heat recovery solutions and is currently participating in some tenders. (Source: TheEdge, 21 January 2020). 

Rating System 

Return on Equity (ROE) = Average 

Revenue [4 years CAGR] = Good 

Net Earnings [4 years CAGR] = Good 

Basic Earnings per Share (EPS) [4 years CAGR] = Good 

Interest Coverage = Average 

Insight 

Based on calculation on Discounted Earnings Model, KAB has an intrinsic value of RM2.529. The current share price of KAB is RM1.960 which is in the range of fair value. (Based on 11Feb2020). KAB has a beta of 0.917 (500 days) indicating that the company is less volatile than the current market. Investors may face a lower risk. Based on the computation of Compound Annual Growth Rate (CAGR), KAB has an expected market return of 5.25%. 

In conclusion, KAB has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax increased year-on-year basis. KAB has actively sought joint ventures and is looking to invest in the Internet of Things (IoT) which can help to enhance its position in the electrical and industry sector. Based on intrinsic value calculated, KAB has 29.03% upside potential in share price.  

Disclaimers 

The research, information and financial opinions expressed on ShareInvestor.com website are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely. 

One Thought on “Case Study of Kejuruteraan Asastera Berhad (0193)

  1. John Heng on February 12, 2020 at 3:21 am said:

    A very good and in depth analytical blog.

Leave a Reply

Your email address will not be published. Required fields are marked *

Site last updated April 3, 2020 @ 3:39 am; This content last updated February 19, 2020 @ 6:54 am