The recent surge in the number of affordable housing projects in Malaysia is putting building materials companies on the radar of investors.
While construction and property development companies are the obvious beneficiaries of this theme, building materials companies supply the raw materials for these projects.
As of October, more than 12,000 units of Perumahan Rakyat 1Malaysia (PR1MA) housing worth RM3.3bil have been booked, while 85,000 units are at various stages of approval.
With a market of that size, the lesser known companies that provide the Industrialised Building System (IBS) could benefit because their solutions are cost effective, shortens construction time and requires less labour.
These factors make them suitable for the construction of affordable houses.
Three listed companies – Ajiya Bhd, Chin Hin Group Bhd and Astino Bhd – provide IBS or produce materials used in IBS.
In a recent research note, Public Investment Bank Research highlighted that Chin Hin stands to benefit from the upcoming affordable housing developments as mandated in the Budget 2017 announcement.
“In Budget 2017, the Government reaffirmed its focus on initiatives such as PR1MA, People’s Housing Programme (PPR) as well as People’s Friendly Homes (PMR), among others.
“We believe these developments would spur order book growth for Chin Hin’s autoclaved aerated concrete (AAC) blocks and wall panels, going forward,” says Public Investment Bank Research.
The research house adds that there is increasing demand for wall panels as the Government encourages the use of this material in IBS.
Chin Hin’s share price has risen by 8.7% to 87 sen since its initial public offering (IPO) in March, as investors remain positive on the potential upside from its exposure in the affordable housing segment.
Chin Hin manufactures an array of building materials, namely, metal roofing, concrete products, as well as mesh and steel bars.
Most of the affordable housing projects are driven by Syarikat Perumahan Negara Bhd, PR1MA and state governments, though there are several property developers also jumping on the bandwagon to shift their focus to affordable housing. This is despite the lower profit margins, as affordable houses sell well.
IBS provides builders with an innovative and advantageous solution as more affordable houses are churned out to meet the growing demand.
IBS components are manufactured in a controlled environment, either on or off-site, to be later placed and assembled in construction works, much like building blocks, thus saving time.
Ajiya Bhd even has its own Ajiya’s Green Integrated Building System (Agibs).
With Agibs, the conventional 24-month construction period is significantly reduced to only eight months.
In addition, the construction cost for one unit is only RM80,000 and can be reduced with economies of scale, says Ajiya managing director Datuk Chan Wah Kiang in a previous interview with StarBiz.
Apart from Agibs, Ajiya manufactures metal roofing and safety glass.
As at August 31, Ajiya’s net cash stands at RM63.47mil, giving it the leeway to expand its capacity to take on more jobs in the future.
Its market capitalisation amounts to RM179.9mil.
Ajiya, through its subsidiary Asia Roofing Industries Sdn Bhd had, during the mid-year, signed a memorandum of understanding with Indonesian PT Baja Bahana Utama for a joint-venture company in Indonesia to manufacture and sell Ajiya metal-roll formed products, specifically Agibs.
For the third quarter ended August 31, Ajiya registered revenue and net profit of RM99.97mil and RM5.39mil respectively, making the nine-month revenue and net profit to be RM294.76mil and RM9.46mil.
As for Astino Bhd, which manufactures metal roof sheets, PVC panels, doors and frames, it has a market capitalisation of RM188.7mil.
For the financial year ended July 31, 2016 (FY16), Astino registered revenue and net profit of RM472.73mil and RM30.35mil, respectively.
The improved net profit as compared to FY15’s RM19.8mil was attributed to higher local demand for its products.
Its closing price of 69 sen on Friday represents a steep discount to its net asset value (NAV) of RM1.11.
Despite flying under the radar, Astino has big plans to expand its operations.
In its latest annual report, Astino chairman Ng Back Teng says that the group will continue to focus on improving its operational efficiencies and explore the possibilities of producing new metal building material products.
“This is to enable us to penetrate into new market segments of local and overseas. In line with our diversification plan to wider our product range, Astino has decided to invest approximately RM60mil to set up a new factory in Changkat, Penang.
“The motion is expected to strengthen the group’s position in this competitive industry and minimise the market risk,” he says.
It is worth noting that Ajiya and Astino’s share prices are currently trading at a considerable discount to their NAV despite being consistently profitable, while Chin Hin’s successful IPO means that it has outperformed the broader market to-date.
The companies are also relatively cheaper in terms of valuation compared to the large-cap construction and property development firms.
Due to their low profile status and low entry price, they also provide a good opportunity for investors who are keen to ride on the wave of affordable housing in the coming years.