This article first appeared in The Edge Malaysia Weekly on November 4, 2024 - November 10, 2024

INFRASTRUCTURE utilities engineering solutions provider Jati Tinggi Group Bhd (KL:JTGROUP) is exploring new business segments such as electricity generation through renewable energy, to achieve a stable financial performance.

Acknowledging the volatility of its current business model, which relies on contract flows, managing director Datuk Seri Lim Yeong Seong says in an interview with The Edge that the new ventures are aimed at mitigating such effects.

For example, for the financial year ended Nov 30, 2023 (FY2023), Jati Tinggi’s net profit dropped to RM3.92 million from RM9.13 million in FY2022, while its net profit margin eased to 3.41% in FY2023 from 3.89% in FY2022.

However, the group recorded a 9MFY2024 net profit of RM9.26 million — more than double the RM3.5 million it achieved in the same period a year earlier — surpassing its total net earnings for FY2023.

Its 3QFY2024 net profit stood at RM1.29 million compared with RM1.41 million in 3QFY2023.

Jati Tinggi provides underground and overhead utilities engineering services and solutions; substation engineering, procurement, construction and commissioning services; equipment trading for substations; and street lighting services.

For 9MFY2024, the company secured contracts worth RM270 million, bringing its outstanding order book to about RM400 million. It is currently bidding for projects valued at RM1 billion and has a historical success rate of about 20%.

Among the key projects secured in recent months are a RM50.87 million contract for the installation of a 132kV underground single circuit cable in Cyberjaya, Selangor, and a RM41.07 million contract for laying 33kV aluminium XLPE underground cables and accessories in Selangor.

It is worth noting that 20% of Jati Tinggi’s project wins are related to data centres (DCs). Lim anticipates that contributions from this segment will continue to grow, given that 79 registered DCs in the country need to be completed over the next three years.

In addition to the boost from the DC segment, he highlights that Jati Tinggi’s outlook will be bolstered by robust demand from semiconductor companies in Malaysia and, most importantly, by Tenaga Nasional Bhd’s (KL:TENAGA) significant capital expenditure plans. TNB has committed to investing an additional RM35 billion from 2025 to 2030 to upgrade the power grid.

“The market potential is huge. We are expecting more opportunities to secure additional contracts,” he states.

Previously, Jati Tinggi’s biggest clients were main contractors appointed by TNB for electricity supply projects. Since early this year, Jati Tinggi has shifted to becoming a main contractor that submits bids directly to TNB, according to Lim.

“Last time we were so comfortable under the main contractor. So right now, we are on our own and become the main contractor.”

In addition to new projects, he notes that the group benefits from maintenance work on cables, which have a lifespan of about 20 years.

Looking ahead, the group aims to participate in more large-scale projects involving transmission-related underground and overhead utilities engineering services with voltages exceeding 132kV. This would position it favourably when tendering for new projects as a main contractor.

Apart from Peninsular Malaysia, the group has also set its sights on Sarawak and Sabah to capitalise on potential infrastructure utilities engineering business opportunities.

With an experienced senior management team, Lim says that Jati Tinggi is leveraging technology tools to enhance project management and delivery, which remains a key challenge for the group and the industry as a whole. For example, he explains that DCs require completion within a very short period.

“Normally for a 132kV project, the project duration is about 18 to 24 months. For a DC, the completion period is within 12 months. It is because their capital investment is too big, whereby [a] one-day delay will cause a financial loss in terms of interest,” he adds.

Jati Tinggi’s share price has risen by 42.6% since its debut on Bursa Malaysia last December at 27 sen per share. The stock reached a peak of 75 sen last July before closing at 38.5 sen last Wednesday, giving it a market capitalisation of RM150.84 million.

There is currently no analyst coverage of Jati Tinggi. According to Bloomberg data, the company is trading at a price-earnings ratio of 33.5 times in comparison to its peer MN Holdings Bhd (KL:MNHLDG), which trades at 21.8 times.

Jati Tinggi is 51.05% owned by Broad River Capital Sdn Bhd, controlled by Lim, executive director Chin Jiunn Shyong and his spouse Lim Ming Hong. Lim is the brother of Ming Hong and the brother-in-law of Chin.

Individually, Lim, Chin and Ming Hong hold 13.78%, 4.59% and 4.59% stakes in the group respectively.

As at end-August 2024, Jati Tinggi had a net cash position of RM4.06 million, with RM19.37 million in loans and borrowings and RM23.43 million in cash, bank balances and fixed deposits.

“We are considering potential M&A (mergers and acquisitions) and will make an announcement when the time is right,” Lim says.

The group has not ruled out the possibility of placing out its shares to raise funds when it secures additional contracts.

Although Jati Tinggi has a dividend policy of distributing up to 20% of its earnings, Lim notes that it is currently not the right time to pay dividends, as the group requires cash for contract fulfilment.

“It’s the first year as a listed company. You see our projects are coming in, and on the other hand, we need to retain the funds first,” he says. Cables are the key cost component for Jati Tinggi but Lim says the material costs are currently manageable. 

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