QR review T7 Global: A True Compounder

Recorded best quarter results in 19 years, surpassing the performance of FY2008

Many people think that to create a compounding effect, you need to have a long time horizon and continuously accumulate returns. However, what is often overlooked is the most crucial aspect: risk management. To sustain consistency and recurrence, we must ensure it is free from interruption. Ultimately, it all comes down to managing uncertainty, as life is full of randomness. Charlie Munger once said, 'The first rule of compounding: Never interrupt it unnecessarily.' Once interrupted, it must restart, taking a longer time to compound. 

I have been writing about T7 Global for almost one year. The reason I came across T7 Global is the management's quality and its consistent growth. Tan Sri Datuk Seri Tan Kean Soon's management philosophy emphasizes positivity in facing challenges, strategic partnerships for providing better solutions, and diligent risk management to guarantee stability and growth. He consistently underscores the importance of cautious action and places a high value on integrity. Additionally, he advocates for managing the company with transparency, adopting an open and confident approach.

T7 Global reported its best results in 19 years, surpassing the performance of FY2008. The company achieved a record quarterly revenue of RM250.8 million, marking an increase of 82.6% quarter-over-quarter (QoQ) and 49.5% year-over-year (YoY). The full-year revenue reached RM586.2 million, up 61.5% YoY. The quarterly PATAMI (Profit After Tax and Minority Interest) was RM14.4 million, showing a rise of 79.1% QoQ and 25.9% YoY, while the full-year PATAMI amounted to RM33.1 million, an increase of 62.5% YoY.

T7 Management has demonstrated its ability under the leadership of Tan Sri Datuk Seri Tan Kean Soon since he took the helm in 2016. Throughout a challenging period spanning from FY2016 to FY2023, which included the downturn in the oil & gas sector and the COVID-19 pandemic, the company recorded noteworthy achievements:

• Revenue per share increased from RM 0.219 to RM 0.772 by FY2023, CAGR 19.72%.

• Diluted EPS rose from RM 0.011 to RM 0.044 in FY2023, CAGR 21.90%..

• ROE improved from 3.53% to 10.18%.

• Gross Margin reached a historic high of 25.65%.

• Net Margin after tax peaked at 5.64%.

T7's business strategy focuses on a long-term recurring model across countercyclical sectors, including operations, maintenance, and construction services that remain in demand regardless of market conditions. Notable projects include a 10-year MOPU leasing contract with Petronas Carigali for over 1 billion and a 5-year MOPU project with Nong Yao, potentially extending for two additional years, worth approximately RM 400 million. Additionally, T7 is involved in the Baggage Handling System (BHS) replacement at KL International Airport, with prospects for an Operations & Maintenance contract post-construction. Expanding into the Aerospace and Defense industries in 2019, T7 established a facility for aerospace metal surface treatment, positioning the Aerospace segment for significant growth from FY24 onwards for recurring business. 

What is next in FY 2024.