KUALA LUMPUR (Jan 17): Kumpulan Kitacon Bhd, which gained 10.3% on its maiden trading day, said the group is unlikely to be affected by the challenging property market outlook, where demand could be further depressed by a possible hike in the overnight policy rate in 2023.

“We are not really impacted by the property overhang issue. I think the challenge is primarily [those that develop] urban condo serviced apartments,” Kitacon managing director Tan Ah Kee told a press conference on Tuesday (Jan 17), following the group’s listing on the Main Market.

The group’s executive director and chief financial officer Lawrence Goh Yin Huat said Kitacon, as a township contractor, would only focus on the construction of low-rise buildings.

JF Apex Securities Research wrote in a Jan 4 note that unfavourable market conditions due to the rise in the residential and commercial properties overhang could be among the main risks Kitacon faces, even though the Home Price Index has begun to soften in 2022. It also noted that any further deterioration of property market conditions could negatively impact the group’s revenues.

Kitacon, a G7 building construction contractor that build both residential and non-residential buildings, jumped to as high as 99 sen after the opening bell, 31 sen higher than its initial public offering (IPO) price of 68 sen.

At 5pm, the stock pared some gains to close at 75 sen — still up 10.3% from its IPO price — giving it a market capitalisation of RM375 million.

Being the most actively-traded stock of the day, it saw 156.7 million shares traded.

According to the group’s fact sheet, residential building construction services (for landed properties) contributed about RM381.34 million or 84% of the group’s revenue for the financial year ended Dec 31, 2021 (FY2021).

This is followed by non-residential building construction services (for commercial buildings) at 15.9%, and other related services such as earthworks, roadworks, hoarding works, rectification works, piling works and infrastructure works (0.1%).

The group’s client base includes Sime Darby Bhd, S P Setia Bhd, Tropicana Corp Bhd, and Eco World Development Group Bhd.

Kitacon has RM853.6 million worth of unbilled contracts on hand, which it expects to realise within the next two years. It is on track to complete most of its 35 ongoing projects within FY2023, and looks forward to replenishing its order book by securing part of its ongoing tender book worth RM3.5 billion.

About 95% of the group’s township developments are located in Klang Valley, with the balance in Johor and Negeri Sembilan.

Kitacon’s revenue has declined from RM581.5 million in FY2019 to RM489.6 million in FY2020 and RM455.5 million in FY2021, amid headwinds caused by the Covid-19 pandemic, supply chain disruptions, hike in raw material costs and labour shortage.

Profit after tax (PAT) was RM54.8 million in FY2019, before falling to RM39.2 million in FY2020. In FY2021, PAT rose to RM41.8 million, as PAT margin recovered to 9.2% from 8% in 2020; it was 9.4% in 2019.

Asked about other challenges facing Kitacon, Tan said, “We are seeing an increase in raw material costs. But we have already adjusted our tenders accordingly. In addition, the problem of labour shortage has not been fully resolved yet”.

The group has secured approval for 500 foreign workers to date, comprising workers from Indonesia, Bangladesh, Myanmar and Nepal, Goh said.

“As of today, 173 workers have arrived, and the rest are expected to arrive in the second quarter [of this year],” Goh said.

Kitacon’s IPO, whose public portion was oversubscribed by 11.46 times, successfully raised a total of 57.1 million for the group, with the issuance of 76.09 million shares at 68 sen each.

Of the total proceeds raised, RM24 million will be used to buy construction equipment, while RM20 million will be used to buy land and to build a storage and refurbishment facility.

RHB Investment Bank Bhd is the principal adviser, as well as sole underwriter and placement agent for its IPO exercise.