Inta Bina Group Berhad Fair Value: RM 0.25 Facing Headwinds. Not rated. Ace Market Listing

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1 A Member of the TA Group MENARA TA ONE, 22 JALAN P. RAMLEE, KUALA LUMPUR, MALAYSIA TEL: / FAX: IPO Friday, 12 May 2017 FBM KLCI: 1, Sector: Construction Inta Bina Group Berhad Fair Value: RM 0.25 Facing Headwinds Ace Market Listing THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Not rated Ooi Beng Hooi Tel: benghooi@ta.com.my Background Inta Bina Group Berhad (Inta Bina) is primarily a building contractor with more than 25 years of operating history in the construction industry in Malaysia. It is involved in the construction of residential buildings, commercial buildings, industrial buildings and leisure properties. It has completed more than 110 building construction projects mainly in the Klang Valley and Johor. IPO Statistic The IPO entails a public issue of 107.1mn new ordinary shares (representing 20.0% of enlarged issued and paid-up share capital), and an offer for sale of up to 26.8mn shares (representing 5.0% of enlarged issued and paid-up share capital) by offeror to selected investors, at IPO price of RM0.25/share. Public issue: 13.4mn new shares for application by the Malaysian public; 13.4mn new shares for application by the Bumiputera investors; 20.0mn new shares for application by eligible directors, employees and business associates/ persons; 6.7mn new shares by way of private placement to selected investors; and 53.5mn new shares by way of private placement to MITI-approved Bumiputera investors. Main Competitive Advantages 1. Established track record; 2. Commitment to quality; and 3. Established relationship with clients. Valuation At IPO price of RM0.25/share, Inta Bina is trading at a trailing PER of 10.5x FY16 earnings. We value Inta Bina at 10x CY18 EPS, on a par with our target P/E for the small-cap segment, and arriving at a fair value of RM0.25/share. Earnings Summary (RM mn) FYE December (RMmn) FY15 FY16 FY17F FY18F FY19F Revenue Gross profit EBITDA EBITDA margin (%) Operating profit PBT PAT EPS * (sen) PER^ (x) Gross dividend * (sen) na na Dividend yield^ (%) na na ROE (%) Note: *based on enlarged share base of 535.3mn, ^ based on IPO price of RM0.25/share Share Information Listing Ace Market Enlarged Share Capital (mn) Market RM0.54 (RM mn) Issue price (RM) 0.25 Oversubscription rate N/A Estimated free float (%) 35.7 Tentative listing date 25 May 2017 Tentative Listing Dates Event Tentative Date Opening of the IPO 5 May 2017 Closing of the IPO 15 May 2017 Balloting of Applications 17 May 2017 Allotment of Shares 23 May 2017 Listing 25 May 2017 Ratio & Analysis NTA per share (post IPO) (sen) 0.29 Price to NTA (x) 0.54 Proforma ROE (%) 35.8 Proforma ROA (%) 14.2 Proforma Gearing (x) net cash Utilisation of Proceeds RM(mn) % Capex Repayment of bank borrowings General working capital Estimated listing expenses TOTAL Page 1 of 5

2 Business Overview Inta Bina Group Berhad (Inta Bina) is primarily a building contractor with more than 25 years of operating history in the construction industry in Malaysia. It is involved In the construction of residential buildings, commercial buildings, industrial buildings and leisure properties. It has completed more than 110 building construction projects mainly in the Klang Valley and Johor. Currently, it has only 1 subsidiary, i.e. Inta Bina Sdn Bhd, and it does not have any associated companies. Exhibit 1: IPO Structure Public Issue Malaysian public Bumiputera investors Eligible directors, employees, business associates/ persons Private placement to identified investors Private placement to MITI-approved Bumiputera investors Offer of Sale Placement to MITI-approved Bumiputera investors 13.4mn new shares 13.4mn new shares 20.0mn new shares 6.7mn new shares 53.5mn new shares 26.8mn vendor shares Utilisation of proceeds The estimated gross proceeds of RM26.8m raised are expected to be utilised for the following manners: Exhibit 5: Utilisation of proceeds Description Estimated timeframe for utilisation from Date of Listing Amount (RM'mn) % of Total Gross Proceeds Capex Within 12 to 18 months Repayment of bank borrowings 6 months General working capital 12 months Estimated listing expenses 1 month Total gross proceeds Competitive Advantages 1) Established track record Inta Bina has more than 25 years of operating history and it has a diversified pool of client portfolio that includes public listed property developers such as Eco World Development Group Bhd, S P Setia Bhd, UEM Sunrise Bhd, Gamuda Bhd, Mah Sing Group Bhd, Lum Chang Holdings Limited, Paramount Corporation Bhd, Plenitude Berhad, Selangor Dredging Bhd, Tropicana Corporation Bhd and Engtex Group Bhd. 2) Commitment to quality The group has been actively participating in building construction projects that are assessed under both CONQUAS and QLASSIC by Building and Construction Authority Singapore and Construction Industry Development Board respectively. These accreditations service to highlight the group s ongoing commitment in providing quality construction services. In comparison to the industry average, Inta Bina s average score for all CONQUAS assessed projects is 78.2%, as compared with the industry average of 76.0% as at LPD. 3) Established relationship with clients The group strives to complete projects within the contract period and maintain high quality of works in order to foster trust and further entrench its Page 2 of 5

3 relationship with its existing clients. It is believed that these have enabled the group to maintain more than 10 years of working relationship with its clients such as Gamuda Bhd, S P Setia Bhd and Engtex Group Bhd. In addition, Inta Bina also established working relationship with other major property developers including Eco World Development Group Bhd, Paramount Corporation Bhd, Plenitude Bhd, Perdana Parkcity Sdn Bhd, Selangor Dredging Bhd, Tropicana Corporation Bhd and UEM Sunrise Bhd. Key Risks Relating to Business and Industry 1) Continuity of order book is not assured The contracts are awarded on a project-to-project basis and it is common for jobs to be awarded based on competitive bidding. As such, there is no assurance of continuity from one project to the next project. Significant depletion of order book will adversely affect the group s long term sustainability and business growth. 2) Delay or cancellation of projects by clients Unfavourable economic conditions or financial performance of its customers may cause them to terminate the projects and the group s business may be adversely affected by such events. 3) Availability and fluctuations in prices of raw materials As the demand for raw materials such as concrete and steel bars are price sensitive, the group may not be able to obtain sufficient quantities of raw materials for its projects when the materials are scarce in the market. This may affect the progress of works on site, potentially causing delay in completion of projects beyond contractual deadlines. Also, the fluctuation in prices of raw materials could affects the group s financial performance. 4) Failure to complete projects within the stipulated contract period The timely completion of projects is dependent on various factors which include timey receipt of requisite licenses, permits or regulatory approvals, availability of construction materials, equipment and labour, availability of financing and satisfactory performance of subcontractors appointed. Any adverse development in respect of these factors can lead to interruptions or delays in completing a project, which may result in clients imposing liquidated damages which could affect the group s profitability and cash flow. 5) Dependence on foreign workers The construction industry is highly dependent on the employment of foreign workers due to the shortage of local workers in the local construction industry. Any disruption on supply of foreign workers, new policies or amendment in policies relating to the employment of foreign workers in the construction industry may greatly disrupt its progress on sites, causing delay in timely completion of projects. 6) Dependence on the services of subcontractors The group engages subcontractors to carry out different parts of construction activities. Any failure of a subcontractor to provide its contracted services as per requirements may lead to damages and penalties being imposed on the group, and adversely impact the financial performance of the group. Financial Highlight The revenue ranged between RM245.8mn and RM271.9mn for the period between FY14 and FY16. Going forward, we forecast the revenue to grow gradually in FY17, FY18 and FY19 as the group could secure more jobs with the purchase of new plant and machinery. Post-IPO, the group intends to spend RM5.0mn on capex to increase its machinery and equipment. Page 3 of 5

4 Its net margin fluctuated between 4.2% and 4.9% in the past 3 years. Given the challenging outlook for the property sector, coupled with the competitive environment of the building construction segment, we estimate the net margin to decline gradually from 4.9% in FY16 to 4.6%, 4.5% and 4.3% in FY17, FY18 and FY19 respectively. Exhibit 6: Financial performance Outlook Currently, the group has an outstanding order book of RM486.2mn (including RM40.3mn from a project which is held abeyance), translating into 1.9x FY16 revenue. The group has submitted tenders for 9 projects with a total tendered sum of RM434.1mn. The outlook of the group s business is largely dependent on the conditions of property development industry as its clients are mainly local property developers. We are less sanguine on the outlook for the property sector given the cautious sentiment in the property sector, coupled with property buyers facing difficulty in obtaining financing. Dividend Policy The group does not have an official dividend policy. However, it is the group s intention to pay dividends to shareholders in the future. The quantum of dividend will depend upon factors such as the group s performance, capex requirements and financial condition. Earnings Forecast We expect earnings growths of +1.8%, +2.5% and -0.6% for FY17, FY18 and FY19 respectively. Our earnings projections are premised upon the following assumptions: Revenue growth of 4.0% to 9.6% between FY17 and FY19, after utilising RM5.0mn from IPO proceeds to increase its capacity; PBT margin of 6.2% to 6.7% between FY17 and FY19; and Order book replenishment assumptions of RM285mn, RM300mn and RM310mn for FY17, FY18 and FY19 respectively. Valuation There are no other listed local competitors that are directly comparable to Inta Bina. While Kerjaya Prospek Group Bhd focuses mainly on building construction, Kerjaya Prospek is a building contractor of much larger scale with a market capitalization of RM1.6bn. Furthermore, Kerjaya Prospek is a niche construction player in high-rise buildings, as evidenced by its above Page 4 of 5

5 average margin. We assign a target PE multiple of 10x to Inta Bina and arrive at a target price of RM0.25. This is considering i) Inta Bina s relatively small market capitalization upon listing; ii) the company is expected to be in net cash position upon listing; iii) the headwinds currently faced by the property sector which is likely to affect jobs flow for building construction; and iv) stiff competition in the building construction segment, as evidenced by high number of registered contractors in this segment and relatively low net profit margin at mid-single digit margin. Not rated. Peer Comparison Price Market Cap EPS (sen) PE (x) P/B (x) ROE (%) Debt/Equity (x) Dividend Yield (%) (RM) (RM mn) FY18 FY18 FY18 FY18 FY18 FY18 KERJAYA net cash 2.6 Source: Bloomberg, TA Securities Stock Recommendation Guideline BUY : Total return within the next 12 months exceeds required rate of return by 5%-point. HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point. SELL : Total return is lower than the required rate of return. Not Rated: The company is not under coverage. The report is for information only. Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA SECURITIES HOLDINGS BERHAD(14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan Head of Research Page 5 of 5