Exsim Hospitality: Unlocking Value Through Strategic Contracts and REIT Ambitions

Exsim Hospitality Bhd (EHB) has long been overlooked by investors, trading at a paltry 36 sen—a 5.26% drop from its 2024 peak—as markets grapple with its reliance on related-party transactions and uncertain execution timelines. But a closer look at its recent contract wins, project pipeline, and REIT ambitions reveals a compelling value proposition. These RM128 million+ related-party contracts, far from being red flags, signal a deliberate strategy to lock in recurring revenue streams and position the group for long-term growth. Here's why investors should take note.

The Contract Pipeline: A Foundation for Stability

At the heart of Exsim's revaluation case are its recent contracts, which total RM127.9 million, primarily through its subsidiary Exsim Concepto. The largest, a RM100 million deal for the Empire City Damansara hotel, underscores the group's deep ties to the sprawling Empire City township—a mixed-use development poised for exponential growth. The project, spanning 16 months with a defect liability period of 12 months, is already underway, with progress tracking since March 2025.

Meanwhile, the RM46 million Port Dickson hotel renovation, set to complete by May 2026, adds geographic diversification. Combined with smaller contracts for sales galleries and show units (e.g., RM12.6 million for a Kuala Lumpur bungalow conversion), these projects create a staggered revenue stream through 2026. The contracts' duration and scale suggest Exsim is not chasing one-off deals but building a predictable income model, a stark contrast to its cyclical construction peers.

Related-Party Transactions: A Strength, Not a Weakness

Critics may balk at the related-party nature of these contracts, citing potential conflicts of interest. Yet Exsim's disclosures emphasize that these deals are conducted at arm's length, with terms favorable to minority shareholders. The majority of contracts involve entities controlled by Exsim's founding Lim family, who have a vested interest in the company's success.

More importantly, these partnerships provide execution certainty. Exsim Development, the parent entity behind many contracts, has a proven track record in delivering large-scale projects like the Empire City township. By leveraging these relationships, Exsim avoids the risks of working with unfamiliar partners, ensuring smoother project timelines and cost control.

The REIT Play: A Catalyst for Value Unlocks

The real game-changer lies in Exsim's ambitions to form a hospitality REIT, a strategy that could transform its valuation. The group has already secured key assets: the Empire City hotel and the refurbished Corus Paradise Resort in Port Dickson (due to reopen in early 2026). These properties, combined with plans to acquire a 420-unit serviced residence in Ipoh, form a portfolio primed for REIT conversion.

A REIT structure would unlock two critical advantages:
1. Tax Efficiency: Dividends paid by REITs are tax-exempt for investors, boosting appeal.
2. Liquidity: REITs attract institutional capital, potentially elevating Exsim's market cap from its current RM334 million undervaluation.

Risks and Realities

The risks are clear: overexposure to related-party deals could invite regulatory scrutiny, while execution delays (e.g., Port Dickson's 14-month timeline) pose cash flow risks. Additionally, occupancy rates at the Corus Paradise Resort post-renovation hinge on the success of its franchising strategy—a high-stakes gamble.

Yet the counterarguments are compelling. Exsim's RM230 million order book (as of February 2025) provides ample near-term visibility. The company's return to profitability in early 2025—after years of losses—also signals improved operational discipline.

Investment Thesis: Buy on Dips, Target 50 Sen

Exsim's stock trades at 36 sen despite a pipeline worth over RM127 million and a REIT roadmap that could double its asset base. This disconnect creates an opportunity. Investors should accumulate shares below 40 sen, with a target of 50 sen by early 2026, catalyzed by:
- Project milestones: Empire City hotel completion (Q3 2026) and Port Dickson reopening (early 2026).
- REIT progress: Announcements on asset acquisitions or regulatory approvals.

Final Word

Exsim is no longer a speculative play on construction contracts. Its strategic partnerships, staggered project timelines, and REIT ambitions create a compound value story. While risks remain, the scale and recurring nature of its contracts justify a re-rating. For investors willing to look past short-term volatility, Exsim offers a rare chance to buy a growth story at a discount.

Recommendation: Accumulate positions below 40 sen, with a stop-loss below 30 sen. The stock's potential to reach 50 sen by late 2025 makes it a compelling hold for long-term investors.