KUALA LUMPUR (March 17): Kumpulan Kitacon Bhd (KL:KITACON) may have more upside than previously thought, while its valuations are still “too cheap to ignore” amid improving margins, CGS International said on Monday.

Profit margins have bottomed at 12% to 13%, and will improve going forward as the construction firm has completed all of its legacy projects on its books, the research house said following a meeting with the management. Steel prices have also declined, providing more boost to margins, it noted.

“Additionally, the management has highlighted its ongoing efforts to optimise costs through material procurement and site management,” the house said.

CGS International, the sole research house covering the stock, raised its target price by 10 sen to RM1.38, and kept Kumpulan Kitacon on a ‘buy’ call.

Shares of Kumpulan Kitacon have been trading in a tight range, swinging between a gain of up to four sen and loss of as much as nine sen. The stock is now barely lower from the start of 2025, bucking the Bursa Malaysia Construction Index’s 16% year-to-date decline.

Valuation-wise, Kumpulan Kitacon is currently trading at an attractive 6.5 times its forward earnings, or 3.2 times if cash is excluded, lower compared to the sector average of 14.8 times, CGS International noted.

That’s “too cheap to ignore”, said CGS International, considering the company’s well-managed operations, strong balance sheet, and strong return on equity of 15.2%-17.3% in 2025-2026.

"We like Kitacon as a cheap proxy for the still buoyant property sector,” the research house said.

Kumpulan Kitacon, on its part, expects consistent tenders for township projects with up to 10% rise in new wins to RM1.2 billion this year, CGS International said, citing the company’s management.

Ongoing township projects, such as Elmina, Bandar Bukit Raja, and Bandar Puncak Alam, meanwhile offer recurring contract opportunities for Kumpulan Kitacon, CGS International noted.