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Dated 5th of February 2021, Affin Hwang Investment Bank had mentioned that revival of mega infrastructure projects would pique interest in the construction sector – especially when the government has allocated up to RM69 billion in expenditure budget – an increase of 38% compared to year 2020.

 

Several key projects, such as East Coast Rail Link & Pan Borneo Highway are likely to get restarted in the second half of the year, hence, with the government’s pump-prime initiative, the construction sector is poised to provide positive return to investors.

 

 

 

From a chart perspective, this is likely to be true as the construction sector had bottomed in February and broken the strong resistance level recently. However, what are the companies that we can lookout for in this rally?

 

My personal stock pick would be AGESON BERHAD (AGES).

 

 

 

From AGES’s price chart movement, we could clearly tell that the company is in a consolidation pattern since early of September last year. Despite the recent revival of the construction sector, AGES has not shown any positive upward movement yet. Isn’t that weird?

 

In my opinion, I think AGES is a laggard behind the turnaround of construction sector.

 

 

 

The chart above shows the revenue and PBT of AGES after the new management had taken over the company. We can see that despite the revenue had decreased, profitability had increased substantially, why is that so?

 

 

 

In 7th of April 2021, the company had completed the forensic audit on the previous management. As explained in the article, the old management team – namely Dato Foo Chu Jong and Foo Chu Pak had failed to exercise their rights as the management of a listed company – where they had fattened their own pockets instead of the company’s.

 

That leaves several legacy projects that are hardly profitable or attractive to the current management of AGES. Hence why the high revenue and low profitability of AGES in financial year 2019.

 

But upon clearing up their legacy projects that are draining the company dry, it seems like AGES had successfully turned around.

 

 

 

In the company’s latest quarterly report, we could see that the profit attributed to shareholders had increased from RM10.947 million to RM17.456 million, representing a 59.5% increase. The new management of AGES is also positive in tune for their upcoming projects – not to mention that AGES is going big in the sand business!

 

Till date, AGES is only trading at a low single digit PER of 3.26 times – which means that this is significantly undervalued as compared to the general construction and engineering group average – which are still in the negative territory. In short, you are now buying a profitable, legacy clearing and “in-trend” company with 3.26 times PER!

 

Based on my experience, any company that shows a consolidation pattern in share price would have a fierce breakout in the future. With AGES’s continuous growth in profitability, I’m very positive that AGES could hit RM0.200 by end of year – that is, you would need to have the patience to wait for it!

  https://klse.i3investor.com/blogs/hgedessmond/2021-04-18-story-h1563390065-Is_Construction_Sector_Still_a_BUY.jsp

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