This article first appeared in Capital, The Edge Malaysia Weekly on January 13, 2025 - January 19, 2025
CBH Engineering Holdings Bhd, a mechanical and electrical (M&E) engineering services provider for substations, is expected to make its debut this Thursday (Jan16), which would make it the second company to list on Bursa Malaysia this year.
The ACE Market-bound company's initial public offering of 94.05 million shares set aside for the Malaysian public was oversubscribed by 34.21 times, as it received 24,992 applications for 3.31 billion shares worth RM927.2 million.
CBH's IPO entails the issuance of 298 million new shares at 28 sen each to raise RM83.44 million in proceeds.
Apart from the public portion, 28.42 million shares were set aside for eligible directors and employees, 47.02 million shares through private placement for selected bumiputera investors, and 128.52 million shares for selected investors.
The IPO also entails a private placement of 188.09 million existing shares (10% of the enlarged issued share capital) to selected bumiputera investors approved by the Ministry of Investment, Trade and Industry, raising RM52.66 million for Quay Holdings, a vehicle controlled by co-founder and managing director Cheah Boon Hwa and his siblings. Post-IPO, the Cheah family will own 72.76% of CBH.
Mercury Securities Sdn Bhd is the principal adviser, sponsor, sole placement agent and sole underwriter for the CBH IPO.
From the total proceeds of RM83.44 million, 46.2% will be used for procurement of equipment and components for future projects. Some 22.2% has been earmarked to pay subcontractors for future projects, and 20.7% for bank guarantees on the projects.
Another 4.1% will go towards the requirement of engineers and other personnel, leaving the remaining 6.8% for listing expenses.
At 28 sen per share, CBH is valued at a price-earnings ratio (PER) of 15.91 times (based on FYE2023 profit after tax) and 11.43 times (based on annualised financial period ended [FPE] 2024 profit after tax).
At its IPO price, the company's market capitalisation is RM526.65 million.
Among its listed peers on Bursa Malaysia are Bintai Kinden Corp Bhd (KL:BINTAI), LFE Corp Bhd (KL:LFECORP), MN Holdings Bhd (KL:MNHLDG), Cabnet Holdings Bhd (KL:CABNET) and HE Group Bhd (KL:HEGROUP).
CBH was founded by its managing director Boon Hwa, along with his siblings Boon Huat and Boon Kiat, in 1990 as an electrical engineering subcontractor. Over the span of 34 years, CBH has evolved into an M&E engineering services provider specialising in electricity supply distribution systems for substations and end-user premises. It also undertakes mechanical engineering works for building systems, such as air conditioning and mechanical ventilation (ACMV) systems, fire protection systems, plumbing and sanitary systems as well as renewable energy systems.
Almost 87% of its revenue in the first eight months of its financial year ended Aug 31, 2024 (8MFY2024), came from substation projects; the remaining 13% came from industrial and commercial building projects.
For the FPE Aug 31, 2024, CBH’s profit after tax (PAT) almost tripled to RM30.66 million from RM12.22 million registered during the same period a year ago. PAT came in at RM33.05 million for FY2023.
Revenue for FPE Aug 31, 2024 stood at RM178.23 million, while revenue for FY2023 was RM207.95 million. Its PAT margin stood at 17.2% in the period under review, versus 15.89% in FY2023.
CBH relies heavily on its ability to continuously win new contracts. Its business is typically based on contracts awarded on a project-by-project basis and its revenue stream is non-recurring in nature.
“It is, therefore, critical that we are able to continuously and consistently secure new projects of similar value and volume,” the company said in its prospectus.
“We intend to pursue larger-scale mechanical and electrical engineering projects.”
Its order book stands at RM203.69 million, of which it is expected to realise RM53.68 million in FY2024 and RM150.01 million in FY2025.
“Our group is currently tendering for 22 projects, collectively totalling RM559.71 million in contract value. There can be no assurance that we will be able to sustain such a level of order book in the future. Further, our order book is also subject to the risk of unexpected delays, cancellations or scope adjustments that may occur from time to time, which could contribute to a reduction in the value of our order book,” CBH said.
While the company does not have a dividend policy, the Cheah family received dividends of RM21.5 million in FY2024 and RM19 million in FY2023.
TA Securities Research estimated CBH’s fair value at 48 sen per share, based on 16 times PER for calendar year 2026 earnings per share, representing a 30% premium to its peers’ average two-year forward PER of 12.4 times.
“We consider the assigned PE multiple to be well justified and reasonable, supported by CBH’s above-average [return on equity], exceptional net margin and strong exposure to the growing data centre industry,” it said in a report dated Dec 31, 2024.
The research house pointed out that CBH is strategically positioned to benefit from the “escalating demand” for data centres in Malaysia, driven by global IT giants’ expanding operations. “Leveraging its strong design-and-build capabilities, CBH ensures efficient project management and shortened lead times. As at the latest project date, CBH’s order book includes 12 active contracts valued at RM203.7 million, with over 95% dedicated to data centre projects,” it added.
Public Investment Bank Research expects CBH’s net profit to grow at a compound annual growth rate of 13.7% for the next two years, reaching RM42.7 million in FY2025.
“Our projection is supported by the group’s total unbilled order book of RM203.7 million for M&E engineering works, which provides earnings visibility of one to two years,” it said in a report dated Dec 31.
The research house’s fair value estimate for CBH is 41 sen per share.
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