CIMB Research neutral on Vivocom bonus issue

KUALA LUMPUR: CIMB Equities Research is neutral on Vivocom’s proposed a one-for-four bonus issue, which will boost its issued shares from 2.6 billion shares to 3.2 billion shares. 

The company, formerly Instacom, is involved in construction, manufacturing and telecommunications. It expects to complete the bonus issue in about two months, after shareholders’ approval. 

CIMB Research said on Wednesday the last bonus issue was a one-for-three in October 2015, just nine months ago. 

“The current bonus proposal does not come as a surprise to us as management had already hinted at this during their 1Q16 results.

“While bonus issues typically boost retail investor interest in a stock that suffers from a lack of trading liquidity, Vivocom does not have this problem. At the existing share base of 2.6 billion shares and a 57% free float, it is frequently already on the top 10 in terms of volume on Bursa Malaysia,” it said.

CIMB Research also noted Vivocom’s share price has recovered from the technical support of 22.5 sen. 

“Our target price is sum-of-parts based and remains unchanged, with the construction business valued at a 10.5 times FY17 P/E, based on a 30% discount to the average sector P/E of 15 times, comparable to other pure contractors of this size. Risks to our target price are project delays and execution. A potential re-rating catalyst is the strong 2Q 16 results,” it said.

However, the research house said that feedback from speaking to retail, high-net worth and institutional clients reveal that investors’ immediate focus will be on the uncertainty surrounding CEO Dr Yeoh’s position in Vivocom. 

“We believe that this should be made clear to investors to lift the overhang on near-term sentiment on the stock as there has been a great deal of speculation on the reasons for his potential early retirement.

“Vivocom’s RM900mil in new contract wins this year has been from non-CRCC clients, which is testimony that it is not just reliant on CRCC for job wins. It also announced that it is finalising a RM600mil contract in Perak. Of its RM4bil order pipeline, only about 30% are CRCC contracts (RM1.1bil Gemas JB double track and Penang major roads). 

“The recent tie-up with China Nuclear Engineering paves the way for an additional strategic partner with a mega Chinese contractor,” it said.