Sand – one of the world’s most important but constantly underappreciated commodity had finally had its shortage problem being undermined by climate experts. As an example, the global consumption rate of sand had tripled over the last two decades as a result of urbanization.
*Excerpt of article from CNBC.
Statistics also show that the correlation between use of sand and cement is very close – as fundamentally, concrete is a mixture of paste (cement) and aggregates (sand & rock). The UN also estimates alongside with the booming construction market in China, which constitutes 58% of the total consumption.
As we know, the consumption of sand & gravel is estimated to be 10 times higher than cement. With the spiking of cement prices, it is expected for sand prices to spike as well. Historically, sand was also perceived as a cheap, infinite raw material to extract from the environment. But we had not factor in the environmental and social costs, yet. And with the conscience for ESG is getting more and more important, it is no doubt that sand would see a supply strain with regulation tightens.
In conclusion, sand businesses are going to boom anytime soon. In Malaysia market, unfortunately there are only a few options to leverage on the booming of sand business. But one of the most undervalued company of all time should be AGESON BERHAD (AGES).
To recap, AGES had a huge transformation from a pureplay construction company but was mismanaged by the previous management, and just had new business owners injected their capital in, where they also expand the new AGES’s business into property development, consultation as well as sand exportation.
Based on an announcement by the company on 18th November 2020, the company had issued a circular to get shareholder’s approval to expand into the sand business. In the circular, the company also did mention about several types of sand that is commercially viable but for now, AGES will first focus on river sand, silica sand and sea sand first.
Investors that are familiar with the sand market should have one big question in mind – how are they going to get approval for the sand mining? Well, they don’t. Knowing how tedious it would be to get the regulator’s approval, AGES had a deal with state-owned MBI Kedah who had the license to do so and had incorporated a joint venture for the business.
As of today, the company had approximately RM 28,169.9 million worth of contract on hand. Although the contracts range from less than a year in tenure to more than 15 years; it is also important to note that AGES’s revenue for financial year 2020 is only approximately RM 100 million. Hence the impact of the sand business would be really huge when it comes up.
Apart from the sand business, it is really sad to see AGES had only RM 145.9 million in market cap with a PE ratio of 3.24 times. With the sand business kicking into effect of the financials of the company, AGES could easily achieve an additional RM 46.9 million in net profit each year over 15 years of time, calculated via 49% JV stake and a conservative margin of 5%. With that coming into effect, AGES would have up to RM 84.4 million in net profit per annum based on FY 2020’s full year profit. That would further dampen AGES’s P/E ratio to less than 2 times.
Based
on technical analysis pattern, AGES is clearly forming a flag pattern
and any breakout above RM 0.130 would trigger a strong buy from the
market. For investors who have holding power – hold onto if you want a minimal of 30% - 40% profit in the timeframe of a year!
https://klse.i3investor.com/blogs/sss/2021-05-19-story-h1565124740-A_SAND_GIANT_THAT_IS_TOO_CHEAP_TO_OVERLOOK.jsp
