Postby winston » Sat Jun 07, 2014 7:04 am

not vested

Salcon under-appreciated stock: CIMB Research

PETALING JAYA: CIMB Research views water and sewerage contractor Salcon as a counter which has been overlooked until recently by investors as well as under-researched.

The research house, which does not rate the stock, said the company’s participation in a consortium that won the RM994mill water treatment plant has boosted it profile and drawn investor interest.

It believes the stock offers value given catalysts in the second-half of the year including the RM170mil Refinery and Petrochemicals Integrated Development (Rapid) water supply, the RM240mil Rapid water treatment plant and the RM200mil Langat 2 sewerage treatment plant.

“We believe Salcon’s story remains relatively under-appreciated. What will drive profitability and a new stream of recurring income over the coming years are its domestic prospects,” it said, adding that the company’s core focus over the next few years would be on the spill-overs of the restructuring of water and sewerage assets in Peninsular Malaysia – a key driver for order book growth.

Salcon has the largest share in the Langat 2 joint venture (JV), with a 36% stake, which works out to RM358mil. This project helped push the company’s order book growth by over 125% to RM645mil.

CIMB Research said both the outstanding order book and the tender book of RM2.2bil “are at all-time highs and have upside”.

Currently, 87% of the company’s total order book comprises domestic jobs while the balance is overseas, mainly sewerage and water related.

It said a 20% to 30% hit rate from the tender book would be achievable. The company also sits on a net cash hoard equivalent to 76% of its market value (estimated at over RM400mil or net cash per share of 57 sen), implying ex-cash financial year ending Dec 31, 2015 (FY15) and FY16 price-earnings ratio of just three to four times.

“The impact of the RM1.2bil gross development value new property development via its potential JV with Eco World has yet to flow through and we do not discount the possibility of more merger and acquisition opportunities for longer-term recurring income given its huge war chest post the divestment of water assets in China,” it said.

CIMB Research said despite the stock’s relatively small market cap, it deserves to be valued at a narrower 20% revised net asset value discount versus peers due to the enlarged estimated net cash.

Source: The Star
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Re: Salcon

Postby winston » Mon Jun 09, 2014 9:41 pm

Why water contractor Salcon is moving into fibre optics by ng bei shan

SUBANG JAYA: Water specialist, Salcon Bhd, surprised the market last month when it acquired a majority stake in Volksbahn Technologies Sdn Bhd (VBT), a fibre-optic cable layer and communication technologies service provider.

VBT is founded by Datuk Mohammad Hakim Low Abdullah and German engineer Christoph Zilian.

The question is, why does the water contractor dabble into the fibre-optic cable space?

Salcon paid RM23.5mil to buy 50.1% in VBT. The small-cap company with a market capitalisation of RM581mil also ventured into property development last year, leading to the concern of over-diversification.

But executive director Datuk Eddy Leong Kok Wah (pic) justifies the diversification as a means to cushion the cyclical nature of its core water contracting business.

Salcon is known for providing engineering solutions and construction works for water and wastewater treatment plants.

The company reported an operating loss of RM2mil for the first quarter ended March 31. This, the company explained, was due to timing in recognition of the water contracts it clinched.

Furthermore, the water sector is known to be in a deadlock for many years due to political issues.

Said Leong: “Although people may think that this (laying fibre-optic cables) is something new, the business model is very much like a concession and Salcon has always been in the business of providing infrastructure related services.”

VBT has a concession to build and maintain 108 km of fibre-optic cables for public transport operator Syarikat Prasarana Negara Bhd.

“It is interesting because most telcos will have difficulties to wire up (data cables) in the Kuala Lumpur city centre,” he said.

For VBT, the cables will be laid alongside Prasarana’s rail network and premises and it can lease the infrastructure to telco players for up to 15 years.

With this new business, Leong expects Salcon be able to enjoy better margins and more consistent cash flows.

He expected margins from this new division to be “much more lucrative” than the single-digit to early teen margins it usually gets for the local water jobs.

Meanwhile, the capital expenditure required for the project was estimated at RM15mil. Leong points out that this amount is relatively small compared to what is typically required for a water project.

Part of the business model of VBT is to leverage on Prasarana’s more than one million daily commuters to provide advertising, remitting and ticketing services in the future.

He expected the new unit to contribute RM10mil-RM15mil per year to the group’s bottom line going forward, adding that it would take three months to complete laying the 108 km cable.

Going forward, Leong said Salcon’s earnings contribution from its three divisions – construction and engineering, fibre optic infrastructure and property development – would all contribute equally.

Leong added that Salcon was hopeful of securing a US$76mil (RM244mil) job in Sri Lanka.

“We are optimistic as we have built water treatment plants there and we should know the results of the tender in another month.”

He sees many opportunities in Sri Lanka because the country needs more infrastructure as the civil war there has ended.

Source: The Star
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