KUALA LUMPUR: Signature International Bhd is set to end its financial year ended June (FY15) with a record net profit, having already surpassed earnings for the whole of FY14 in the second quarter ended December 2014 (2QFY15).

Analysts expect the kitchen system designer and distributor’s net profit to continue to gain traction over the next two years on the back of a tender book totalling some RM400 million.

An analyst at a local brokerage said Signature is currently bidding for RM400 million worth of jobs, including Phase 2 of the Battersea Power Station project (BSP2) in London and China’s Country Garden condominium project in Iskandar Malaysia, Johor.

The tender bid winner for the BSP2 kitchen work job, which is estimated to be worth around RM20 million to RM30 million, is expected to be known by the middle of next year.

The kitchen job contract for the Country Garden condominium project — which is scheduled for delivery in the next two years — is estimated to be worth at least RM100 million. The kitchen jobs may be broken down into two to three jobs and should be awarded by the end of this year.

“As per management’s guidance, the group’s success rate on its tender book is around 40% to 50%. Therefore, I believe that Signature stands a high chance of securing some of the contracts,” the analyst told The Edge Financial Daily.

He noted that Signature has also proven its capability to deliver its projects on time, thus enabling it to establish a good relationship with property developers.

Signature saw its net profit for 3QFY15 surge more than 3½ times to RM32.25 million from RM9.06 million a year ago, surpassing the RM17.84 million net profit posted for the full FY14. Revenue for 3QFY15 grew 94.9% to RM217.97 million from RM111.83 million in 3QFY14.

The group attributed the improved performance to higher revenue recorded from its project and retail division of the kitchen and wardrobe segment and white goods, as well as an overall improvement in margins due to economies of scale.

The analyst expects the project division of the kitchen and wardrobe segment will continue to be a major contributor to the group’s results going forward.

Signature’s current outstanding order book is around RM160 million, which will keep it busy for the next one to two years.

The analyst said should Signature clinch the kitchen job contracts for both BSP2 and the Country Garden condominium project, it would keep the group busy for at least five years.

The analyst also sees the development boom in high-rise buildings in the country spell opportunity for Signature to grow further.

“The [property development] trend now is that most of the property developers would choose to build high-rise buildings priced from RM500,000 to RM1 million and above.

“Normally these iconic developments will come equipped with kitchen and wardrobe and other basic necessities,” he added.

CIMB Research senior analyst Nigel Foo said even after the share price outperformance this year, Signature’s valuation is still attractive at 5.9 times its FY16 forward price-earnings.

“The stock’s valuation could rise further if the group secures the Country Garden and the BSP projects over the next few months,” he said in a report dated July 13.

Year-to-date, Signature’s share price has risen 46.3%, outperforming the FBM KLCI’s 1.96% decline. In addition, a new substantial shareholder, Hong Kong’s Value Partners Group, emerged in mid-June. Value Partners Group currently owns a 5.6% stake in the company, said Foo.

Foo believes Signature has the potential to register record net profit over the next few years even without the Country Garden and the BSP projects.

He estimates that Signature will generate a net profit of RM52.3 million in FY16 and RM56.6 million in FY17.

“Our current earnings forecasts do not include any potential earnings from [the] Country Garden and BSP [projects]. If we assume that Signature wins 100% of the two contracts, its order book would rise by RM340 million.

“Based on our earnings sensitivity analysis, Signature’s FY16 and FY17 net profit would rise by 71% and 76% respectively if the group secures 100% of the Country Garden and the BSP jobs,” he added.

Signature (fundamental: 2.3; valuation: 2.1) shares closed six sen or 2.23% higher at RM2.75 last Thursday, bringing a market capitalisation of RM329.88 million.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Financial Daily, on July 20, 2015.