KUALA LUMPUR: While making into Forbes Asia’s “Best Under A Billion” list this year is something Signature International Bhd can be proud of, it is still the ability to replenish orders that is investors’ utmost concern about the company.
“Based on the current order book and the tender book, we are confident FY17 (financial year ending June 30, 2017) will be better than FY16,” Signature co-founder and group managing director Tan Kee Choong told The Edge Financial Daily in a recent interview.
This was despite a slowdown in the local property scene, on which Signature’s project division — which secures projects from property developers by providing kitchen cabinets for the residential units that are rolled out — relies. The project division now contributes about 70% of Signature’s total revenue.
“We aren’t too worried as the situation is not very alarming,” said Kee Choong, though he admitted there is a noticeable slowdown in new property launches. “We used to secure projects from tier-1 property developers only. Now, we work with tier-2 and boutique developers too.”
Its project division’s order book stood at RM205 million as at end-July, which Kee Choong anticipates should last Signature between one and two years, depending on the progress of the projects. “There will be more [awards] coming in, in the next two to three months.”
The group’s tender book stands at “about RM400 million to RM500 million”, and Signature has historically been able to secure four to five projects out of every 10 jobs it tendered for.
Kee Choong’s optimism notwithstanding, Signature has felt the pinch of the cooling property market here. Its net profit for the third quarter ended March 31, 2016 (3QFY16) fell 62.6% year-on-year (y-o-y) to RM5.01 million from RM13.39 million, as revenue declined 37.5% to RM54.69 million, mainly due to lower project revenue contribution from both the kitchen and wardrobe, and glass and aluminium segments.
For the cumulative nine months, net profit sank 51.8% y-o-y to RM15.55 million from RM32.25 million, as revenue fell 29.1% to RM154.54 million. Its earnings were also affected by the weakening ringgit against the US dollar, which resulted in higher import costs.
However, the group, which is expected to announce its fourth-quarter and full-year financial results before August ends, will be recognising a net gain from the disposal of its 3.3-acre (1.33ha) land in Kota Damansara, which will offset all previous quarterly earnings decline this year, said Kee Choong.
Signature has already paid a special dividend of 10 sen per share after it received RM79.95 million as compensation from the Selangor government for the compulsory acquisition of the land in mid-May, to make way for the Damansara-Shah Alam Elevated Expressway (DASH).
“This is like a consolation prize for shareholders,” said Kee Choong, adding the rest of the proceeds will be used for working capital and capital expenditure.
As at Aug 1, Signature was in a net cash position of RM65 million. A big chunk of it comes from the compensation sum, which translates into a net cash of 27.55 sen per share. Signature’s stock closed one sen or 1.02% lower at 97 sen last Friday, valuing the company at RM233.1 million.
As it searches for more orders, Signature hopes to expand its overseas reach. It is now preparing to bid for provision of kitchen cabinet systems for phase 3A of the Battersea Power Station project in London, which comprises over 500 residential units that are scheduled for completion in 2019. The deal is estimated to be worth about RM50 million.
The Battersea Power Station project is a 42-acre former industrial site that is being redeveloped over seven phases into a mixed development comprising homes, shops, offices, a public park and a new tube station. It is owned by S P Setia Bhd, Sime Darby Bhd and the Employees Provident Fund.
“We have to prepare all necessary documentations and go through the pre-qualification stage first. It’s progressing well so far,” said Kee Choong.
Details of the contract are still scarce, said Kee Choong, as Battersea’s main contractor, French-based Bouygues Construction, has yet to officially open the tender. “We have talked to our distributors in Europe and engaged an installer firm to work with us. We are well-prepared if we clinch the contract,” he added.
TA Securities Holding Bhd senior manager Tan Kam Meng is positive on Signature’s chance of winning the project, due to the project’s Malaysian developers. “Battersea Phase 3 has garnered a commendable take-up rate of 60%. There would not be any delay in kitchen contract award,” he said in an email reply to The Edge Financial Daily.
But Kam Meng noted Signature’s tender price may have to be tweaked upwards. Though Kee Choong hasn’t indicated so, he admitted margin may be squeezed due to Brexit, as developers’ margins slide due to the weakening of the pound.
As for the long-awaited kitchen cabinet system contract from Country Garden’s Danga Bay development, Kee Choong said the developer has yet to finalise its decision, “but we know our chance is slim”. It is learnt that the Chinese developer may be collaborating with its sister company instead.
On dividends, though Signature has no fixed policy at this juncture, Kee Choong, the largest shareholder with a direct stake of 25.26% as at May 5, said Signature has been paying 30% of its profit after tax as dividend and plans to keep to the payout quantum.
Meanwhile, TA Securities estimates Signature’s order book replenishment to be RM205 million to RM258 million in FY17 to FY19 — higher than FY16’s estimated RM108 million — given the slew of housing supply in Malaysia in the next few years, typically in the upmarket segment. This will fuel FY17 to FY19’s earnings growth, said Kam Meng, who has a “buy” call on Signature’s stock, with a target price of RM1.62, as at July 11.