Kumpulan Jetson Bhd (Jan 25, RM1.23)
Not rated at RM1.24 with target price of RM1.71: It was once a hopeful thought that Kumpulan Jetson would be linked to Naza group to undertake the multi-billion Matrade Centre development for the International Trade and Industry Ministry.
Its share price soared to a high of RM2.99 in November 2009 when a formal shareholders’ agreement was inked between Jetson and Naza to formalise the relationship in the joint venture company, TTDI Jetson, and to carry out the development of Matrade Centre as well as the exchange land at Jalan Duta.
However, this euphoria was short-lived with a termination of JV agreement in September 2010, leading to a sharp drop in share price to a low of 87 sen in late 2010.
The repercussions of the termination of the JV agreement were felt in both the top and bottom lines. Year-to-date 9MFY11 earnings slipped into losses underpinned by 65.8% contraction in construction revenue.
According to management, the lacklustre performance was largely due to a lack of new construction job wins in 2009/10. The group did not actively bid for external jobs as it had planned and allocated substantial resources to the development of the Matrade Centre.
Moreover, the adoption of a new accounting standard, IC12, on the treatment of amortisation of concession assets, has resulted in a surge in amortisation cost of its concession asset.
If we exclude the IC12 impact, the 9MFY11 earnings would have otherwise shown a profit of RM1.9 million. Nonetheless, Jetson is expected to bounce back with its management team pulling up its socks and ardently exploring new opportunities. The results can be seen in new projects secured in 2011, which would add to the bottom line over the immediate term.
In addition, the impact of IC12 will be muted in FY12 earnings. All in, the group is expected to close this difficult chapter in Jetson’s history in FY11 and move on to a new chapter of life with increasing contribution from all divisions.
Earnings for FY12 are expected to stage a strong rebound if all projects and plans kick start this year. Based on our conservative assumptions (base-case), we expect earnings to increase to RM13.1 million in FY12 and RM15.1 million in FY13 from an estimated net loss of RM4.8 million in FY11.
In our best-case scenario, our FY12/FY13 earnings projections could grow to as high as RM21.4 million to RM21.7 million if the group were to secure additional new contracts and lock in higher sales of property in FY12/FY13. However, if the group fails to secure any new orders and the take-up rates on its Penang and China projects are low, FY12/FY13’s earnings recovery would be mild (worst-case scenario).
In terms of balance sheet quality, the group’s net gearing stood at 0.4 times as at September 2011. We believe much of the borrowings are draw-down for financing the concession assets, thus we see minimal liquidity risks.
However, for the group to take on new projects or landbanking, new funding in the form of borrowing or equity would have to come to support this. Having said that, we understand that the group is actively scouting for land in Penang and the Klang Valley for future development.
For valuation purposes, we draw a direct comparison with TRC Synergy under our coverage. Based on our base-case projections, Jetson is currently trading at a discount to TRC.
Although Jetson’s earnings and balance sheet quality are inferior to TRC’s, we consider the discount of up to six times TRC’s current trading price-earnings ratio (PER) as excessive. We value Jetson at RM1.71 per share with a potential upside of 38% after pegging a PER of eight times CY12 earnings.
In the valuation, we believe a turnaround in FY12 earnings is in the making and the disappointment over the Matrade deal is now behind us. Not rated. — TA Securities Research, Jan 20
Not rated at RM1.24 with target price of RM1.71: It was once a hopeful thought that Kumpulan Jetson would be linked to Naza group to undertake the multi-billion Matrade Centre development for the International Trade and Industry Ministry.
Its share price soared to a high of RM2.99 in November 2009 when a formal shareholders’ agreement was inked between Jetson and Naza to formalise the relationship in the joint venture company, TTDI Jetson, and to carry out the development of Matrade Centre as well as the exchange land at Jalan Duta.
However, this euphoria was short-lived with a termination of JV agreement in September 2010, leading to a sharp drop in share price to a low of 87 sen in late 2010.
The repercussions of the termination of the JV agreement were felt in both the top and bottom lines. Year-to-date 9MFY11 earnings slipped into losses underpinned by 65.8% contraction in construction revenue.
According to management, the lacklustre performance was largely due to a lack of new construction job wins in 2009/10. The group did not actively bid for external jobs as it had planned and allocated substantial resources to the development of the Matrade Centre.
Moreover, the adoption of a new accounting standard, IC12, on the treatment of amortisation of concession assets, has resulted in a surge in amortisation cost of its concession asset.
If we exclude the IC12 impact, the 9MFY11 earnings would have otherwise shown a profit of RM1.9 million. Nonetheless, Jetson is expected to bounce back with its management team pulling up its socks and ardently exploring new opportunities. The results can be seen in new projects secured in 2011, which would add to the bottom line over the immediate term.
In addition, the impact of IC12 will be muted in FY12 earnings. All in, the group is expected to close this difficult chapter in Jetson’s history in FY11 and move on to a new chapter of life with increasing contribution from all divisions.
Earnings for FY12 are expected to stage a strong rebound if all projects and plans kick start this year. Based on our conservative assumptions (base-case), we expect earnings to increase to RM13.1 million in FY12 and RM15.1 million in FY13 from an estimated net loss of RM4.8 million in FY11.
In our best-case scenario, our FY12/FY13 earnings projections could grow to as high as RM21.4 million to RM21.7 million if the group were to secure additional new contracts and lock in higher sales of property in FY12/FY13. However, if the group fails to secure any new orders and the take-up rates on its Penang and China projects are low, FY12/FY13’s earnings recovery would be mild (worst-case scenario).
In terms of balance sheet quality, the group’s net gearing stood at 0.4 times as at September 2011. We believe much of the borrowings are draw-down for financing the concession assets, thus we see minimal liquidity risks.
However, for the group to take on new projects or landbanking, new funding in the form of borrowing or equity would have to come to support this. Having said that, we understand that the group is actively scouting for land in Penang and the Klang Valley for future development.
For valuation purposes, we draw a direct comparison with TRC Synergy under our coverage. Based on our base-case projections, Jetson is currently trading at a discount to TRC.
Although Jetson’s earnings and balance sheet quality are inferior to TRC’s, we consider the discount of up to six times TRC’s current trading price-earnings ratio (PER) as excessive. We value Jetson at RM1.71 per share with a potential upside of 38% after pegging a PER of eight times CY12 earnings.
In the valuation, we believe a turnaround in FY12 earnings is in the making and the disappointment over the Matrade deal is now behind us. Not rated. — TA Securities Research, Jan 20
