KUALA LUMPUR: CIMB Securities Sdn Bhd views the lapse of KJTS Group Bhd's proposed acquisition of Malakoff Utilities Sdn Bhd (MUSB) as negative for KJTS, as its previous earnings estimates had assumed the deal would be completed in the first quarter of financial year 2026.
In a recent Bursa Malaysia filing, Malakoff Corp Bhd said the sales and purchase agreement for the disposal of its 100 per cent stake in MUSB to KJTS had lapsed following the non-fulfilment of conditions precedent upon the expiry of the long stop date on Feb 3, 2026.
Malakoff added that two conditions precedent were not met and it does not intend to extend the timeline for the agreement.
KJTS had announced in February 2025 its intention to acquire MUSB for RM65.5 million.
MUSB is the exclusive electricity provider for KL Sentral and operates a district cooling plant supplying chilled water to 10 buildings within the development.
CIMB Securities said its earlier projections assumed the bulk of efficiency-enhancing engineering, procurement, construction, and commissioning upgrades for MUSB's district cooling facilities would be recognised between the second and third quarters of the financial year 2026.
Following the termination of the deal, the firm cut its financial year 2026 to 2028 earnings per share estimates by between 6.1 per cent and 38.2 per cent.
This reflects the removal of anticipated EPCC contributions from the refurbishment of MUSB's cooling energy assets, the loss of earnings contribution from MUSB's operations, and the absence of economies of scale benefits.
As a result of the earnings downgrade, CIMB Securities maintained a "Buy" call and reduced its target price for KJTS to RM1.00 from RM1.65 previously.
This was based on an unchanged 25-times calendar year 2027 price-to-earnings multiple, representing a premium of about 20 per cent to global cooling energy peers.
Despite the setback, the firm said it remains constructive on KJTS, citing its positioning as a key beneficiary of structural growth driven by the National Energy Transition Roadmap (NETR).
It also highlighted a projected three-year earnings-per-share compound annual growth rate of 22.5 per cent and KJTS's scarcity premium as the only energy efficiency pure play on Bursa Malaysia focused on the roadmap.
The firm added that potential contract wins under KJTS's joint venture with Stonepeak remain unpriced catalysts, alongside other standalone cooling energy contracts exceeding RM50 million.
"Any value-accretive cooling energy asset acquisitions could materially enhance KJTS's long-term earnings profile, which we have yet to factor into our forecasts," it said.