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