THE pie in the construction sector may be shrinking but there is still enough work to go around for the big as well as the small players. And with the recent announcement that more pump-priming measures are on the way, construction companies must be rubbing their hands with glee at the possibility of more opportunities.
Against this backdrop, recently listed Isyoda Corp with an order book of RM994.9 million has perhaps joined the fray of the listed construction plays at the right time. The company was listed on the main board on Dec 11 2002.
For the first quarter ended Sept 30 2002, Isyoda posted a net profit of RM2.62 million on the back of RM69.66 million sales.
The Class A bumiputra contractor is mainly involved in civil engineering and building works. It plans to be more aggressively involved in the design and building-related works given that they fetch higher profit margins.
Isyoda is also keen to diversify into the production and provision of related construction materials.
To date, the company has completed construction projects worth some RM723.7 million.
“We like the company as it is professional and has lots of small contracts. Also, the pump-priming by the government is an important feature and all construction companies stand to benefit,” says an analyst from Surf88.com.
TSR Capital and TRC Synergy (in the same industry) are currently trading above their initial public offering price of RM1.30 and RM1.60 respectively. As at Thursday, TSR Capital ended trading at RM3.00, while TRC Synergy closed at RM2.27.
Although the same cannot be said of Isyoda’s performance, analysts attribute this to poor market sentiment being factored into the stock.
Analysts like Isyoda's fundamentals however. Some of its completed jobs include the construction of a road and bridge from Tendong to Wakaf Che Yeh in Kelantan and the upgrading of the interchange at Jalan Johor Baru-Kota Tinggi/ Lebuhraya Pasir Gudang.
Approximately 70 per cent of its total order book is government or quasi-government projects, while the balance is in-house and private sector projects.
“These projects are expected to contribute to the group’s revenue over the next three years. In addition, Isyoda has received a letter of intent from the Public Works Department to design and construct a road from Gurun to Sik in Kedah worth RM250 million,” says an analyst from OSK Research.
The one minor setback is that a major portion of Isyoda’s projects is government contracts. This, therefore, exposes the company to political and economic changes.
“It faces the risk of not being able to maintain continuous supplies and services from its suppliers and sub-contractors in the future as it does not have long-term contracts with them,” continues the analyst from OSK Research.
Through its 51 per cent-subsidiary G-Pile System (GPS), Isyoda has obtained the exclusive marketing and distribution rights to market and operate a hydraulic injection piling system from China to South-East Asia.
OSK Research reports that each machine costs about RM1.5 million to RM2 million and has an injection capacity of between 200 and 600 tonnes. This system is environmentally friendly, quiet and free from vibration.
Isyoda’s executive chairman, Datuk Mohammadiah Moner Ahmad Zazuli, had mentioned that Isyoda’s edge is hydraulic injection piling services as well as its experience and track record in the construction industry that would put it in a strong position to secure more contracts in the future.
A market observer pointed out that contribution from the hydraulic sector was actually still very marginal. The analyst from OSK Research also felt that the prospects of hydraulic services was still uncertain as only 2 systems had been sold so far.
Nevertheless, Isyoda recently completed its first overseas job in China. The project, which was valued at about RM38 million, involved the construction of impounding and access roads, as well as a power station, pressured tunnels, office and staff quarters, transmission lines and main sub-station for Zhangzhou Linghe Liangba Hydropower Ltd.
In an unrelated exercise, Isyoda ventured into the information technology (IT) business in 1998 through its 51 per cent-owned subsidiary, Rexit Solutions Sdn Bhd. It provides various IT-related services and products, and has presently developed two business products, specially for its clients in the insurance industry, namely Integrated Insurance Management System and Electronic Claims Management System
OSK Research has a fair value of RM2.20 for the stock. As at Thursday, the stock closed at RM1.67, 4.5 per cent below its premium price of RM1.75.
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