This article first appeared in Capital, The Edge Malaysia Weekly on May 22, 2017 - May 28, 2017

CONSTRUCTION company Inta Bina Group Bhd will list on the ACE Market on May 25. Interestingly, it has done work for some major property developers, including UEM Sunrise Bhd, Gamuda Bhd, Mitraland Group Sdn Bhd, Tropicana Corp Bhd, Eco World Development Group Bhd, Engtex Group Bhd and Plenitude Bhd.

Inta Bina’s work is mainly focused in the Klang Valley as well as Johor. To date, the company has completed 110 projects, giving it a decent track record.

The group, which is involved in both residential and non-residential projects, is led by managing director Lim Ooi Joo, who has over 30 years of experience in the industry. Post-listing, Lim will control 42.78% of the company, including a 33.88% stake via his vehicle Apexjaya Sdn Bhd.

A key sweetener for Inta Bina’s listing is its unbilled order book of RM486.16 million as at March 31. However, one of its projects is currently in abeyance. Worth RM40.25 million and accounting for 8.28% of its order book, the project was awarded by Fabulous Range Sdn Bhd, a subsidiary of Lum Chang Holdings Ltd. Leaving it aside, Inta Bina still has an order book of RM445.91 million.

In contrast, it is expected to list with a market capitalisation of RM133.8 million.

It is noteworthy that Inta Bina enjoyed a gross profit margin of 11.28% in the financial year ended Dec 31, 2016 (FY2016), with a gross profit margin of 8.96% in the Klang Valley and 22.36% in Johor.

On a side note, the group made 65% of its gross profit in the Klang Valley, with the balance from Johor.

Inta Bina’s profit after tax margin was 4.89%. That means that its order book translates into a profit after tax of RM21.8 million. Conservatively assuming that the work is spread out over 24 months, it works out to an earnings per share of two sen per year. This, in turn, gives the group a base valuation of at least 12.5 times.

In its prospectus, Inta Bina admits to being “dependent on certain major clients”. Currently, its largest clients are Mitraland — with an outstanding unbilled contract value of RM188.09 million — and EcoWorld, with RM133.43 million outstanding, being 38.69% and 27.44% respectively of the RM486.16 million unbilled sales as at end-March. Last year, there was no revenue from Mitraland but EcoWorld contributed 20.39% to the group’s top line.

A sizeable portion of the company’s work in the past had come from UEM Sunrise’s developments in Johor.

Another risk Inta Bina has flagged is the practice of clients paying in the form of “contra” property units.

To date, it has received 10 property units in this manner with a net book value of RM14.9 million. Seven, worth RM13.7 million in total, are currently vacant. Only two (worth a total of RM272,000) have been rented out while one other (worth RM917,000) is being used by the company.

Inta Bina has also purchased two other properties, worth RM3.2 million, from a client.

Moving forward, the company will be deploying most of its cash to strengthen its balance sheet and to stock up on equipment for future projects.

Of the RM26.8 million of funds raised, 33.63% or RM9 million will go to the repayment of bank borrowings. This will reduce Inta Bina’s gearing from 0.59 times currently to around 0.3 times. The repayments will translate into interest savings of RM440,000 per annum.

The company will still have about RM23.88 million in borrowings after the initial public offering, against about RM40 million in cash.

Some RM9.56 million or 35.73% of the funds raised will go to its working capital. About RM5 million or 18.7% will be spent on capital expenditure — mainly machinery and equipment — and the bulk of this (RM1.5 million) will be set aside for 3,000 sq m of aluminium formwork, a temporary mould into which concrete is poured.

Going forward, Inta Bina’s earnings will be shaped by its ability to score a slice of construction work from property developers — arguably a shrinking pie. Nonetheless, it has a proven track record, having worked for some of the largest developers in the country, and has a sizable order book to keep it busy in the near term.

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