Company profile:
TBK is a long-established civil and structural engineering contractor in Malaysia. The company has been undertaking civil and structural projects in the oil and gas industry since the 1970s. The company has registered CE Class (Civil Engineering Construction), Class B (Building Construction) and ME Class (Mechatronic) G7 qualifications in the Construction Industry Development Board. This is the highest contractor license under the Construction Industry Development Board, so it can undertake civil and structural works with unlimited bid/contract value. According to the Frost & Sullivan report, based on 2018 earnings, the company accounted for about 1.7% of the civil engineering market share of the downstream Malaysian oil and gas industry in that year.
The views of China and Thailand:
The civil and structural engineering market for Malaysian oil and gas facilities is picking up: According to the Frost & Sullivan report, due to fluctuations in crude oil prices over the past five years, the total value of completed civil and structural works for Malaysian upstream oil and gas facilities reached RM3.6 billion by the end of 2018, with a compound annual growth rate of about -0.5% from 2014 to 2018. Benefiting from a recovery in crude oil prices in the future, the engineering value of related businesses is expected to pick up at a rate of about 7.3% and reach RM5.3 billion by the end of 2023.
In terms of operating performance: In the 2016-2018 fiscal year and the nine months ending March 31, 2019, TBK achieved operating income of RM0.3 million, RM130 million, RM150 million and RM160 million respectively. The steady increase in revenue was due to the increase in the number of civil engineering and construction projects; gross margin was 27.1%, 20.6%, 21.9% and 18.9% respectively. The year-on-year decline in gross margin in 2019 was mainly due to increased subcontracting costs; the net profit margin in 2019 was 11.1%, 12.9%, 12.5% and 7.5%, respectively. The year-on-year decline in net interest rates in 2019 was due to listing expenses; the winning rates were 44.4%, 0, 66.7% and 35.7% respectively. In addition, the company's largest customer revenue accounted for 60.4%, 51.9%, 30.0% and 60.7% year-on-year. The concentration of customers is extremely high. If major customers fail to make timely payments, it will have a negative impact on the company's cash flow.
In terms of valuation: Based on the global share capital of 1 billion after the public sale, the company's market value is HK$500-600 million, which is lower than that of its Hong Kong stock peers. The price-earnings ratio of the company in 2018 was about 14.4-17.2 times, lower than the industry average; the net market ratio was about 2.27-2.5 times, lower than the industry average. In terms of profitability, ROE and ROA in 2018 were 39.5% and 20.5% respectively, which is higher than the industry average. Considering that the company's business is mainly located in Malaysia, investors are not familiar with this. Based on the company's position in the industry, performance and valuation level, we gave it 54 points, and the rating was “neutral”.
Risk warning: (1) market competition risk, (2) impact of project bid rate