This article first appeared in The Edge Financial Daily on May 21, 2018

KUALA LUMPUR: Kejuruteraan Asastera Bhd (KAB) is on the lookout for acquisitions and joint ventures (JVs) that will give it immediate access to new areas in the mechanical and engineering (M&E) market, as well as expand its footprint in the northern and southern regions of Peninsular Malaysia.

Its 50-year-old founder and managing director Datuk Lai Keng Onn said this year the ACE Market-listed electrical and mechanical engineering company will be on an aggressive drive to scale up and expand its geographic reach organically, or via acquisitions and JVs.

KAB currently has a strong presence in the central region, but lacks presence in the northern and southern regions.

“We are looking at partners who are familiar with local conditions. While we hope to have a majority stake in the JV, we are open [to a minority stake] if that is the better way to go. Nevertheless, we will not rush into a JV if it doesn’t suit us,” he told The Edge Financial Daily in an interview last week.

Lai said the group has been in talks to acquire companies, but nothing has been finalised so far.

In the meantime, KAB will be expanding organically via the setting up of a Johor branch office within the next three months to support a project that it is close to clinching there.

With total borrowings of RM9.16 million and cash and cash equivalents of RM9.07 million, KAB had net cash of RM82,200 as at Dec 31 last year.

The electrical engineering services segment currently accounts for a significant portion of KAB’s revenue, but Lai wants to change that as it ramps up its push into the mechanical engineering services segment which involves the provision of air-conditioning and mechanical ventilation systems, and maintenance services. The electrical engineering services segment accounted for 97.9% of revenue for the financial year ended Dec 31, 2017 (FY17).

“Over the past few years, we have been very focused on electrical engineering services segment, specifically in new construction and property projects,” he said.

“Now the group is ready to look at other segments. We hope the mechanical engineering services segment will eventually make up 40%-50% of the group’s revenue and the rest will come from the electrical engineering services segment,” he said.

KAB also looks to grow its client base, which includes property developers like Mah Sing Group Bhd, Mitraland Group, Kerjaya Prospek Group Bhd, Binastra Land Sdn Bhd and Inta Bina Group Bhd.

“There’re still a lot of major developers which we haven’t penetrated yet such as Sime Darby Property Bhd and S P Setia Bhd. But repeat business from our existing clients has been keeping us busy and we hope to continue building that,” said Lai.

It is thus not surprising that KAB is showing no signs of being affected by the slowdown in the property market.

“Malaysia has been developing for so many years. Eventually development will slow down. Many buildings are now 30-40 years old and this would drive the need for building refurbishment, which would involve the upgrade of M&E systems of buildings. That will be good for KAB.

“We foresee this market will be big for us. It is only a matter of time,” said Lai.

Another area KAB sees an opportunity to grow in is the M&E segment for infrastructure projects.

“We have received invitations to tender for [M&E contracts for] MRT station projects. But first, we are looking at setting up a team to focus on such projects. We will not rush into it,” he added.

With various expansion plans in the pipeline, growth is imminent for KAB.

According to Lai, the group has an internal double-digit growth target for both revenue and net profit for the current financial year.

It posted a net profit of RM6.78 million on revenue of RM114.55 million in FY17. There were no comparison figures for FY16 as the group only made its debut on Bursa Malaysia last November.

“By listing, it puts us in a better position in the market and to tell people that we are capable of undertaking any projects. Pursuant to our listing, we now have a stronger balance sheet to tender for bigger jobs,” he said.

Lai noted that KAB is registered with the Energy Commission as a Class A electrical contractor and also holds a Grade G7 licence approved by the Construction Industry Development Board Malaysia, which allows the group to tender for electrical projects with unlimited value.

Acknowledging that KAB is competing in a fragmented and highly competitive industry with low barriers to entry, Lai pointed out that the group tries to distinguish its offering from others based on its 120-strong staff that are strong in the respective M&E practices. “We have a proper standard operating procedure, which enables us to provide good backup services to our clients.”

KAB had an outstanding order book of RM222 million as at April 30, which will keep it busy until 2020. “We aim to replenish our order book by RM100 million this year,” said Lai.

The group’s tender book stood at RM336 million, consisting mostly of projects in the central region.

KAB shares closed at 26 sen last Friday. The share price was 4% above its initial public offering price of 25 sen per share.

At current level, KAB is trading at a forward price-earnings multiple of 8.4 times, lower than the broader market. The FBM KLCI is trading at 17.45 times.