ADVCON 5281 ADVANCECON HOLDINGS BERHAD wins more projects but still lagging in share price. What is wrong with the company?

  ADVCON 5281 ADVANCECON HOLDINGS BERHAD wins more projects but still lagging in share price. What is wrong with the company?



Advancecon Holdings Bhd has been seeing some positive momentum in the last 5 days


The counter gained some 4.3% to close at 24 sen on Apr 25 having touched a 52-week low of 22 sen recently.


The slightly better share price performance is likely stemming from another job win by Advancecon.


On April 25, the construction outfit said it has been appointed as a subcontractor for the construction and completion of subgrade earthwork of section five of the East Coast Rail Link (ECRL) project for RM11.54 million.


Its indirect 51%-owned subsidiary Spring Energy Sdn Bhd accepted the award letter from China Communications Construction (ECRL) Sdn Bhd for the appointment.


But many investors wonder why the share price of Advancecon is still lagging despite winning many projects.


It has got more than RM700 million worth of contracts in hand but its market cap is still smallish at around RM137 million.


One possible reason for the lack of interest in the counter stems from its negative margin from ECRL project, uncertainties in the Sarawak steel project and drag from its quarry segment.


Things do not look rosy based on its financial results.


In FY22, Advancecon plunged into the red with a net loss of RM21.7 million versus a net profit of RM2 million in the previous year mainly due to manpower constraints and project terminations resulting in cost overrun and losses.


This is despite posting a jump in revenue to RM422.3 million from RM270.8 million.


Its revenue could have been higher if not for the early terminations of 2 projects due to non-payments, resulting in a loss by RM11.7 million.


Construction and support services segment contributed about 58.9% to the group’s revenue while quarry segment contributed about 40.9%.


The remaining revenue was derived from the green energy and property investment segments.


RHB Research expects losses from the quarry segment to continue, albeit at a smaller scale as the market normalises.


However, things could look better for Advancecon as it may secure more contracts from Sarawak given its exposure in the Pan Borneo Highway and road projects under the Upper Rajang Development Authority.


The research house estimates some 20% of Advancecon’s current orderbook is made up of Sarawak-related projects.


As such, the company will likely be a key beneficiary with the state receiving a higher allocation of RM5.6 billion under the re-tabled Budget 2023 versus the earlier allocation of RM4.6 billion.


The counter is seen as a laggard considering that the construction industry is on the mend and its ability to clinch more projects.


In addition, there is also potentially much higher earnings in the future from the power purchase agreement for its Large Scale Solar 4 (LSS4) project, which is still minimal, at <1% of total revenue currently.


Once it is able to record positive margins from its jobs and better earnings from its LSS4 project, the counter is bound to see further upside in a matter of time.


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