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StockStalk  |  JANUARY 26, 2016 11:30PM

Fututech/Kerjaya: Forming of a coalition

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StockStalk instory imageFututech Bhd recently saw an injection of two construction companies, along with their order books, into itself, with the new coalition now known as Kerjaya Prospek Group Bhd. Just how will this new coalition proceed in this time of volatile markets?

Business model: A company of many names, Kerjaya Prospek Group Bhd, formerly Fututech Bhd, formerly Ulbon Bhd, the company listed on Bursa Malaysia in 1996, and deals in four core competencies, namely construction, kitchen cabinetry, lighting, and property development.

Kerjaya changed its name recently, following a corporate exercise to acquire two privately run construction companies, namely Kerjaya Prospek and Permatang Bakti.

Post-injection, the company now serves as an end-to-end building contractor, with a RM2.7 billion order book. The acquisition of the two companies by Fututech also include a profit guarantee, where the vendors of Kerjaya Prospek have committed to providing Fututech with three years of core earnings amounting to a cumulative RM150 million from 2016 to 2018.

Shareholders and management: Executive chairman Tee Eng Ho and executive director Tee Eng Seng, through Egovision Sdn Bhd, hold a 68.88% stake in Kerjaya, with executive directors Toh Siew Chuon and Loo Soo Loong following after Egovision with a 2.53% and 2.25% stake respectively.

The company stands as a family business, with Tee Eng Ho continuing to lead the company post-injection. Kerjaya Prospek and Permatang Bakti were both founded by Tee Eng Ho, who has over 21 years of experience in the construction business.

Kerjaya 1-year price chart 260116 01Share performance: Kerjaya saw its own share of highs and lows over the past year, with the intra-year low coming in at RM1.10 on Feb 4, 2015. However, the stock then saw a rally to hit RM1.80, the intra-year high, in the last week of April 2015, before again trending down to hit RM1.17 on Aug 25, 2015.

The stock then peaked yet again at RM1.80 on Jan 12 2016, following the announcement on Bursa Malaysia on Dec 29 2015, when Fututech had announced that they would be merging. On Jan 26, 2016, the stock, now named Kerjaya, closed at RM1.75.

Analyst-recommendations-for-Kerjaya-200116-01What analysts think: Analysts have reacted positively to the announcement of the injection, with UOB Kay Hian (UOBKH) calling the company an up-and-coming mid-caps construction player with a strong order book of RM2.7 billion, which are a major step up from Fututech’s existing RM97.1 million order book pre-injection.

“Fututech is well positioned to join the mid-cap construction sector with the acquisition of both Kerjaya Prospek and Permatang Bakti from its executive chairman and controlling shareholder Tee Eng Ho,” noted UOBKH.

It was also noted that recent injection asset Kerjaya Prospek, is also the gem of the company, according to UOBKH, who noted that the company was responsible for securing a number of repeat orders from key clients and deliver on jobs ahead of schedule while booking mid-teen pre-tax profit margins which are significantly higher than the industry average.

Kenanga IB also pointed out that, post-injection, the company stands at a strong nett cash position with a war chest of RM126.5 million. Also noted was that Kerjaya currently has a tender book of RM1.2 billion, with management guiding to secure RM600 million in jobs this year.

Earnings summary:

Kerjaya-earnings-summary-260116-01

StockStalk: The most interesting thing to note is actually the profit guarantee clause of the injection, which guarantees a cumulative profit of RM150 million from 2016 to 2018, making it a promise of RM50 million in profit per annum. Normally, this would be seen as something risky to promise, considering the point that the property sector is looking at headwinds from low consumer sentiment this year, as well as the point that nothing is ever certain in the world of business.

However, both Kenanga IB and UOBKH are confident that the company will hit its numbers, with Kenanga IB projecting estimated nett profits of between RM91.3 million and RM100.9 million for the company’s financial year 2016 (FY16) and FY17. To this point, the company does enjoy a significantly stronger order book following the asset injection, which might make this promise a bit more solid than most.

Investors looking for a mid-caps property player for their portfolios can take a look at Kerjaya, but the company’s closing price of RM1.75 on Jan 26, 2016 puts it very close to the RM1.80 high point the group has just seen. Investors looking to buy in might want to take the opportunity, as the company is looking at a solid few years ahead, and its share price may very well appreciate further. As a note, Kenanga IB projects a three-year compound annual growth rate of 95.6% in the 2014 to 2017 period.

Still, that remains the choice of the investor, who is reminded of the weak sentiment the property sector is looking at this year, following storms from the weakness in China’s exports, general consumer sentiment, as well as political instability.

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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.



 
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