PETALING JAYA: Advancecon Holdings Bhd, a small-cap construction company engaged in civil engineering and infrastructure works, is back on the radar of some analysts.
For one, it has a niche in earthworks business where it has a 20% market share.
The segment contributes the lion’s share of its revenue at some 50%-70%.
On the back of this, the stock is seen as a frontrunner for new development projects, which could add to the 17 ongoing projects at various stages of completion, said RHB Research.
Based on the existing projects, its collection on total billings could be around 35%, estimated RHB in its report initiating coverage on the stock. Currently, its order book stands at about RM881mil.
Going ahead, the research firm said that management targets to clinch new orders worth RM300mil in the financial year 2021 (FY21).
Besides this, the group has made a strategic venture into the growing solar power business, which would provide a recurring income stream to complement its core business and civil engineering unit.
The recent win of its large-scale solar (LSS4) project, said RHB, has the potential to boost net profit by 13% year-on-year in FY24. It also aims to book at least RM1mil in net profit from this business over the next two decades.
RHB sees current valuations as an attractive entry point.
It has a target price of 54 sen, pegging FY22 forecast earnings per share (EPS) to 12 times price-earnings ratio.
“The multiple represents its five-year mean baseline, which is warranted as earnings are rebounding to pre-pandemic levels; it has a healthy replenishment rate assumption of RM300mil and RM350mil per year for FY21 and FY22; plus its net profit margin is growing, ” it said in the report.
Notably, RHB points out that the group emerged as the biggest winner of East Coast Rail Link contracts in 2020-2021, clinching RM185mil in packages scored.
This is about 21% of its current outstanding order book.
The new jobs are expected to enhance billings to existing works for the West Coast Expressway, which came up to about 42% of unbilled orders as of Dec 31 2020, it said, noting that key issues related to WCE land acquisition have been resolved.
Earnings-wise, the group’s FY20 core earnings stood at RM2.1mil, down 81% year-on-year.
However, its fourth-quarter 2020 results were encouraging, as profits grew from third-quarter 2020 by 16%.
The downside risks to its outlook include a prolonged downturn in the retail and property markets, and a longer-than-expected delay in the rollout of mega infrastructure projects. Sudden restrictions on activities, possibly due to lockdown measures, if implemented, could slow recovery.
Its shares closed up 4 sen to 44.5 sen, giving the stock a market cap of RM168mil.