SIGNATURE INTERNATIONAL BHD is unperturbed by the slowdown in the property market. The kitchen cabinet and wardrobe maker is still receiving a fair number of enquiries from prospective customers every month.

Besides, Signature (fundamental: 2.1; valuation: 2.4) is hopeful of winning a slice of the high-quantity projects in a 5 to 10-year development by Chinese developers in Iskandar Malaysia.

Also, it sees opportunities in affordable housing projects under the Perumahan Rakyat 1Malaysia (PR1MA) programme.

“We will be able to achieve double-digit growth [in revenue and profit] for the financial year ending June 30, 2015 (FY2015). For FY2016, we are very confident. For FY2017, it will depend on how fast our order book translates into revenue recognition,” its managing director Tan Kee Choong tells The Edge.

Signature’s project division is currently sitting on an unbilled order book of RM200 million and a tender book of RM500 million that is spread over three to five years. Tan is optimistic that the group can sustain its figures “beyond three years”.

“I agree that property launches are slowing down. However, it’s not like there are totally no launches. There are launches, and we are still receiving enquiries. Being a market leader here, even if the project launches are fewer, we will still have projects to work on,” says Tan, who is also the company’s single largest shareholder with a 24.9% stake.

For FY2014, Signature posted a net profit of RM19.2 million, or 16.2 sen per share, on revenue of RM178.7 million, of which 69% was contributed by the project division.

Its net profit tripled to RM6.67 million, or 5.6 sen per share, in the first quarter ended Sept 30, 2014 (1QFY2015) from RM2.03 million in 1QFY2014. Revenue more than doubled to RM59.3 million from RM27 million.

The continued order flow explains the rationale for Signature’s purchase of five parcels of industrial land in Seremban recently for RM50.8 million to double its capacity.

Signature’s pro forma gearing will increase to 0.58 times from 0.16 times if the land purchases are funded solely by borrowings, but Tan says the group is comfortable at this level, given its steady cash flow.

Signature is still very much focused on the home market, with the central region accounting for 60% of its tender book; the southern region, 30%; and the northern region, Sabah and Sarawak, 10%.

“We are [now] focusing on Sabah. There are fewer competitors there, and we stand a very good chance. We have done a couple of projects there and because of that, we’re invited to tender [for contracts] when there are project launches,” Tan says.

Historically, Signature’s tender book has a success rate of 40% to 50%, based on the number of projects, and not the values of the tenders. The values of the tenders can range from RM2 million to RM20 million.

On the Battersea project in London, in which Signature had bid for, Tan says the group has failed to win the contract for the first phase and is now following up on the second phase, although it is still in the preliminary stage.

The second phase contract, which is estimated at RM20 million to RM30 million, is expected to be awarded in the middle of next year, he says.

While the group continues to focus on high-end projects, he says it sees the PR1MA programme as an extended offering.

Tan, however, notes that PR1MA, which is spread over 10 years, is still very much in the preliminary stage.

“What we are proposing for PR1MA is, bundling our offerings with loan packages. As the government currently has no plans to include [the cost of] kitchen cabinets as part of the loan, we are trying to work out a scheme. That’s the plan, but it’s still in the early stage,” he says.

“Nonetheless, I don’t see this (PR1MA) as a major contributor to our earnings. If we can get it, it will be a bonus.”

Signature enjoys a gross profit margin of 30% for its high and mid-end projects, Tan says.

The group is also optimistic about the performance of its retail division (30% contribution to group revenue), which generates cash flow and helps establish its brand.

“While the project division will remain as our main driver, we have equal focus on the project and retail divisions. A revenue contribution ratio of 70:30 or 65:35 will be good … we do not want the retail division to be too small,” says Tan.

To further build its brand, the group set up two Signature Lifestyle Galleries last year — at The Cube in Puchong, Selangor, and Danga Utama in Johor — to provide a “lifestyle experience” to prospective customers and host cook shows and so on.

“We expect about 10% growth in the retail segment every year, hence we will add three more galleries as part of our five-year plan [which started last year]. We will not see immediate returns, but [I’m confident that] the galleries will generate extra revenue for the group,” Tan says.

Meanwhile, Signature’s new interior fit-out division will serve as a complementary segment, leveraging the group’s customers.

This segment raked in RM8.1 million in inter-company revenue in FY2014. For 1QFY2015, its inter-company revenue and pre-tax profit stood at RM11.3 million and RM1.4 million respectively.

While this division is expected to grow, Tan does not want to place too much emphasis on it just yet, noting that it serves only to complement the group’s core business.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on January 19 - 25 , 2015.

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