Positive meeting to reaffirm earnings estimates
Focus on technical expertise
Stable demand from affordable housing segment
Nonetheless, we maintain our BUY recommendation with a TP of RM0.40 per share
Key takeaways are as follows;
Positive meeting to reaffirm earnings estimates We emerged from our meeting with Mr. Choo Seng Choon, Executive Director of Vivocom International Holdings Berhad (VIHB) feeling reassured with our estimates. Year-to-date, VIHB share price decreased -36.11% and comparatively, -53.63% from its high in May, 2016. We attribute the tumble to bad press and market cyclicality. Guided by our observation (Figure 1), VIHB presents very attractive yield of +10.5% on the back of +6.75% spread against the 5-y MGS yield of 3.76%.
Focus on technical expertise. Turning to its progress, we believe concentration is vital to maintain VIHB high margins. Closely, the management stresses on maintaining margin though concentration of; (i) design and build contracts and (ii) affordable housing. We remarked in our last report (1.6.17) that VIHB will not be able to continue 14.7% operating margin for FYE17/FYE18. However, the management have indicated that the margins are attainable albeit blips in between progress billings and revenue recognition due to total orderbook size of RM2.3bn inclusive of projects from Neata Aluminium. We are confident that earnings will grow stronger in FYE18 backed by its strong revenue growth and profit margin as compared to its peers. (Figure 2)
Stable demand from affordable housing segment. For affordable housing, the management has indicated that Perak and Terengganu present stable opportunities as the demand is continuous. Looking at Perak, the demand of residential projects has maintained its growth trajectory. Similarly, in Terengganu residential projects is stable notwithstanding smaller scale. (Figure 3). Current VIHB’s construction orderbook of RM1.8bn or approximately 2.0x FYE17 revenue cover. We are expecting VIHB to replenish RM600m of jobs for FYE17/FYE18/FYE19 led by affordable housing and mixed development.
Recommendation. On the basis thereof, we reaffirm our BUY recommendation with a TP of RM0.40 per share based on discounted cash flow (DCF) with WACC of 7.4%.Our target price implies an enticing +347% upside backed by an undemanding current PER of 9.5X.
Source: MIDF Research - 13 Jul 2017
