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November 16, 2017

Kejuruteraan Asastera Berhad NOT RATED

(KAB1234 MK)

Expert in M&E IPO Price MYR 0.25

M&E expert listing at a discount to construction Company Description

sector Kejuruteraan Asastera is an electrical and mechanical

expert. It offers installation, testing and commissioning
Kejuruteraan Asastera will be listed on the ACE Market of Bursa Malaysia of electrical systems.
Securities Bhd on 17 Nov 2017. With an outstanding order book of
MYR216.9m and various expansion plans post-listing, growth is imminent.

Its IPO price of MYR0.25 implies a historical FY16 P/E of 12.2x. Based on
annualised 5M17 earnings, KA trades at a prospective FY17 P/E of 11.7x.
In comparison, the Bursa Malaysia Construction Index trades at a 2017 Statistics
P/E of 15.0x.
Free float (%) 31.5
Issued shares (m) 320.0
M&E expert seeking listing Market capitalisation MYR80.0M
Kejuruteraan Asastera Bhd (KA), an electrical and mechanical expert, USD19.1M
will be listed on the ACE Market of Bursa Malaysia Securities Bhd on 17 Major shareholders:
Nov 2017. The company is issuing up to 80m new shares at MYR0.25 each Dato Lai 61.3%
Choong GS 3.8%
to raise MYR20m. There is also an offer for sale of 32m shares by way of

private placement to institutional and selected investors.

Order book at 2.3x 2016 sales

KA has an outstanding order book of MYR216.9m at end-May 2017
(equivalent to 2.3x FY16 revenue), which will be progressively
recognised over FY17-19. Pursuant to this IPO, it will have a stronger
balance sheet to support its expansion plan, which includes tendering for
bigger jobs and growing its mechanical engineering services. The
Governments initiatives to promote affordable housing programmes
nationwide and the rising need for building upgrading, expansion,
refurbishment, retrofitting and renovation will drive demand for
electrical and mechanical services.

FYE Dec (MYR m) FY14 FY15 FY16 Utilisation of IPO proceeds MYR20m
Revenue 57.0 87.1 93.1
EB ITDA 5.3 6.2 9.4
Co re net pro fit 3.9 4.5 6.6
Co re FDEP S (sen) 1.2 1.4 2.0 Estimated
Co re FDEP S gro wth (%) - 17.4 44.1 expenses
Repayment of 18%
Net DP S (sen) - - - borrowings
Co re FD P /E (x) 20.7 17.6 12.2 8%
P /B V (x) 11.3 7.5 5.0 Setting up Working
new offices Capital
Net dividend yield (%) - - - Capital
3% 60%
ROA A (%) - 11.2 10.6 11%
EV/EB ITDA (x) 15.0 12.9 8.5
Net gearing (%) (incl perps) 42.8 97.6 13.6
Co nsensus net pro fit - - -
M KE vs. Co nsensus (%) - - -
Source: Company

Tee Sze Chiah Aseela Zahari
(603) 2082 6858 (603) 2297 8767

Kejuruteraan Asastera Berhad

IPO highlights
An electrical and mechanical expert

Kejuruteraan Asastera (KA) has close to 20 years of experience in the electrical

and mechanical engineering services industry. It is registered with the Energy
Commission Malaysia as a Class A electrical contractor, which allows the group to
tender for electrical projects exceeding MYR1m. It is also registered with the
CIDB as a Grade G7 license holder, allowing the group to tender for electrical
projects with unlimited value.

Electrical engineering services is KAs core business activity, accounting for 87.2%
of 5M17 revenue (FY16: 92.9%). It involves the installation, testing and
commissioning of electrical systems which comprise:

Electrical services: Electrical distribution system comprises networks of

electrical cables and equipment for electricity supply and distribution
systems, lighting systems, and earthing and lightning systems in a building or
site. It also involves the installation of high voltage transformers,
switchgears, low voltage systems as well as main switchboards.

FTTH services: Involves communications and information technology

networks including those related to fibre optic cabling for data and voice

ELV services: Including services such as access control, car park system and
gate barrier, CCTV, SMATV, security and alarm system, sound system, public
address and intercommunication systems.

The company also provides mechanical engineering services which involve the
installation, testing and commissioning of air-conditioning and mechanical
ventilation systems. This could be awarded as part of the electrical engineering
services contracts or on a standalone basis.

To complement the electrical and mechanical engineering services, KA also sells

materials that are used in its projects to the subcontractors. These materials
include cables, switches, trunking, pipes and electrical accessories.

KA: FY16 revenue breakdown by business activities KA: 5M17 revenue breakdown by business activities

Sale of
goods, 7.1% Mechanical,
ELV, 3.2% 0.8%
FTTH, 3.0% Sale of
ELV, 4.4% goods,
FTTH, 3.4% 12.0%

Electrical, Electrical,
86.7% 79.4%

Source: Prospectus Source: Prospectus

November 16, 2017 2

Kejuruteraan Asastera Berhad

Target markets

KA mainly services the main contractors, project owners and property developers
in Malaysia, either via direct or indirect invitations. The group is not dependent
on any single customer though some of its clients contributed >10% of its revenue
over the past three years. These customers may vary from year to year,
depending on projects and purchase orders.

Over the past three years, KA has been appointed as a nominated subcontractor
for approximately 69.8% of the total number of projects secured. Unlike a normal
subcontractor, a nominated subcontractor is appointed by the project owner,
and the main contractor is obliged to appoint the company as a subcontractor for
the services to be provided. With this status, KA will be able to have direct
negotiations with the project owner on the terms of the subcontract and the
process is less competitive compared to a public tender.

Outlook & prospects

Industry growing at 14.5% CAGR

According to the Independent Market Research Report (IMRR) by Smith Zander

International, mechanical and electrical engineering services in Malaysia,
measured in terms of total value of awarded projects, increased from MYR3.5b in
2006 to MYR62.5b in 2016, registering a CAGR of 33.4%. It also projects the
mechanical and electrical engineering services industry to further grow to
MYR93.8b in 2019, at a CAGR of 14.5%, driven mainly by private investments and
government policies to spur growth in the construction sector and socio-
economic development.

Plenty of room to grow

Market share. KA has a market share of just 1.7% in 2016, based on the total
value of awarded electrical engineering services projects versus the total value
of electrical projects awarded in the construction sector. Therefore, there are
abundant opportunities for the group to tap into. Management intends to tender
for more projects post listing, particularly for large scale residential, commercial
and mixed-development projects.

A deeper pocket. Via this listing exercise, KA has earmarked MYR7.5m for tender
bonds/performance bonds to bid for jobs. Without funding, securing large
contracts is a challenge. A performance bond (in the form of bank guarantees),
which is about 5% of the total contract sum award, is required by customers until
after the issuance of the Certificate of Practical Completion. As a private
company, KAs expansion plan has in the past, been limited by its ability to
secure adequate credit facilities for bank guarantees. Based on our back-of-the-
envelope calculation, the MYR7.5m additional funds will enable the group to
bid/undertake jobs up to MYR150m, equivalent to 1.6x its FY16 revenue.

Targeting affordable housing projects. One of the segments which KA intends to

expand into is the affordable housing segment. The Governments efforts to
launch and promote affordable housing programmes nationwide is expected to
bode well for the mechanical and electrical engineering services industry, which
in turn, could benefit KA. At present, KA is keen to explore opportunities in
programmes such as Rumah Mesra Rakyat 1Malaysia (RMR1M), Program
Perumahan Rakyat (PPR), Perumahan Rakyat 1Malaysia (PR1MA), 1Malaysia Civil
Servants Housing (PPA1M) as well as programmes for second-generation FELDA
and FELCRA settlers.
November 16, 2017 3
Kejuruteraan Asastera Berhad

Going south. Another expansion plan is to grow more aggressively into the
Southern region of Malaysia. Historically, KA has focused on projects in the
Central region, particularly in Kuala Lumpur and Selangor. Approximately 98.3%
of its FY16 revenue was derived from the Central region.

To grow mechanical engineering services. KAs intention is to focus on

providing air conditioning and mechanical ventilation services as an added
service. This unit will only start to contribute in FY17. As at 5M17, this segment
accounted for only 0.8% of the groups revenue. Going forward, KA will tag along
its electrical engineering services with the main contractors and project owners
by leveraging existing business relationships.

Provide maintenance services. Another venue to expand its revenue base is to

expand its maintenance services to include services post expiry of the defect
liability period. At present, KA provides maintenance services to building owners
and operators during the defect liability period, which generally covers a period
between 12-28 months. Locally, the need for building upgrading, expansion,
refurbishment, retrofitting and renovation will drive demand for the upgrade of
electrical and mechanical systems across the lifespan of buildings.

Financials & valuation

FY15 margin hit by GST. For the past three years, save for FY15, KAs GP
margins were above 15% (FY14: 15.8%; FY15: 13%; FY16: 17.1%). The decrease in
FY15 GP margin was due to an increase in costs, mainly resulting from the
implementation of GST that was levied on its contract materials such as
generator sets, transformers, cables and switchboards. Typically, the GP margin
is higher for more complex works. 5M17 GP margin stood at 18.2%.

Healthy order book. KA had an outstanding order book of MYR216.9m at end-May

2017 (equivalent to 2.3x FY16 revenue), which will be progressively recognised
over FY17-19. Some of the property projects which engaged KA for electrical
engineering services include EkoCheras at Cheras (Unbilled: MYR38.1m), Astoria
Ampang at Jalan Ampang (Unbilled: MYR23m), Jalilmas and The Havre at Bukit
Jalil (Unbilled: MYR19.8m), and Lakeville Residence (Package 2 and 3) at Taman
Wahyu, KL (Unbilled: MYR15.3m), just to name a few.

Will be in a net cash position. KA will be a net cash company pursuant to the
listing. Based on its pro forma balance sheet (after utilisation of IPO proceeds),
the company will have MYR14.4m net cash, equivalent to 4.5sen per share
(approximately 18% of the IPO price of MYR0.25).

Valuation on the listing day. Based on its pro forma financial statements, KA is
trading at an historical FY16 P/E of 12.2x, at its IPO price of MYR0.25. Based on
annualised 5M17 earnings, KA trades at a prospective FY17 P/E of 11.7x. In
comparison, the Bursa Malaysia Construction Index trades at a 2017 P/E of 15.0x.
While there are other M&E companies listed on Bursa Malaysia, such as Bintai
Kinden, LFE Corporation, Metronic Global, YFG Bhd and AWC (via its subsidiary
Qudotech S/B), most of these companies were loss-making in the latest financial
year. AWC is not a direct comparable as it has three core divisions.

November 16, 2017 4

Kejuruteraan Asastera Berhad

Research Offices
Sadiq CURRIMBHOY WONG Chew Hann, CA Head of Research Christopher WONG Maria LAPIZ Head of Institutional Research
Regional Head, Research & Economics (603) 2297 8686 (852) 2268 0652 Dir (66) 2257 0250 | (66) 2658 6300 ext 1399
(65) 6231 5836 Strategy HK & China Properties Strategy Consumer Materials Ind. Estates
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Sittichai DUANGRATTANACHAYA (852) 2268 0633
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Port Operation Pharmaceutical
Food & Beverage

NGUYEN Thanh Lam

(84) 4 44 555 888 x 8086
Technical Analysis

November 16, 2017 5

Kejuruteraan Asastera Berhad


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credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and
consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings
Maybank Kim Eng Research uses the following rating system
BUY Return is expected to be above 10% in the next 12 months (excluding dividends)
HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)
SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only
applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment
ratings as we do not actively follow developments in these companies.

November 16, 2017 7

Kejuruteraan Asastera Berhad

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Tel: (65) 6636-3620 US Toll Free: 1 877 837 7635
US Toll Free: 1-866-406-7447

Malaysia Thailand
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Tel: (603) 2717 5166 Tel: (66)2 658 6820

Indonesia London
Harianto Liong Mark Howe
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New York India

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Tel: (212) 688 8886 Tel: (91)-22-6623-2629

Vietnam Philippines
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November 16, 2017 8