KJTS Group set for robust earnings growth

PETALING JAYA: KJTS Group Bhd’s regional expansion and robust recurring income base are setting the stage for a strong earnings trajectory, underpinned by its asset-light model and rising exposure to the fast-growing cooling energy sector.

With over 70% of its revenue generated from recurring sources, the ACE Market-listed company offers investors both earnings visibility and financial resilience.

Maybank Investment Bank Research (Maybank IB) views KJTS as a compelling long-term environmental, social and governance (ESG) play, backed by proactive energy conservation efforts and its clients’ reliance on central command centre-linked systems.

“The group’s scalable and replicable business model across the region offers a unique opportunity to ride the energy efficiency theme.

“Its strong earnings visibility is further supported by long-term CEMS (cooling energy management services) contracts ranging from five to 20 years,” said Maybank IB in a recent report.

As at end-July 2023, KJTS had at least six ongoing CEMS contracts, each contributing a minimum of RM1mil in annual recurring revenue. While KJTS’ core operations include cooling energy services, cleaning services, and facilities management, its strategic pivot into cooling energy asset ownership represents the next phase in the group’s development, according to Maybank IB.

This transition has been accelerated through the acquisition of Malakoff Utilities Sdn Bhd (MUSB), allowing KJTS to own cooling energy assets on a non-concessionary basis. Growth will be further propelled via its 10:90 joint venture with Stonepeak Kelvin Holdings, which is targeting RM1.5bil in investments.

“KJTS stands to benefit as both engineering, procurement and construction and operations and maintenance contractor to the joint venture, giving it an asset-light platform to drive recurring income,” Maybank IB pointed out.

Between 2020 and 2024, the group’s revenue and net profit grew at a compound annual growth rate (CAGR) of 17% and 30% respectively.

Consensus forecasts net profit to reach RM32.4mil in 2025 and RM40.8mil in 2026, translating into forward price-to-earnings ratios of 21.1 times and 16.8 times respectively – comparable to other companies with stable recurring revenue streams.

However, Maybank IB Research a key differentiator: “Consensus is forecasting KJTS to deliver a net profit CAGR of 62% over 2024 to 2026, far outpacing the peer average of 8%.”

Its regional footprint is already taking shape, with Singapore and Thailand contributing 19% and 7% of group revenue in 2024, respectively. Its presence in Singapore began with the 2019 acquisition of KJ FEM, a cleaning services provider.

In Thailand, it operates via KJTN Engineering – 49% owned by KJTS – which secured a 16-year CEMS contract in Bangkok running to 2037.

As at end-December 2024, the group had RM60.2mil in net cash following its initial public offering that raised RM58.9mil.

Post-MUSB acquisition for RM65.5mil, KJTS is expected to carry a modest net debt of RM5.3mil, translating into a net gearing of just 0.05 times.

Maybank IB pointed out: “The group’s regional expansion, resilient financial profile and strong ESG credentials underpin our favourable view on its long-term prospects.”