Stock Name: ENCORP
Company Name: ENCORP BHD
Research House: HWANGDBS
Encorp Bhd
(April 27, RM1.16)
Not rated, price target of RM1.70: In our view, the biggest positive for Encorp is its close ties with Perbadanan Kemajuan Negeri Selangor (PKNS) dating back to 2001.
This is positive on two counts. There is a ready pipeline of prime landbank and secondly, it enables Encorp to run an asset-light business model as land cost is paid in stages.
Given its balance sheet has minimal gearing (excluding RM1.16 billion bonds ring fenced for concession), we think the RM137 million raised from its redeemable convertible secured loan stocks (RCSLS) is for further property development with PKNS given the latter's large tract of land in the Klang Valley as well as government-led project financing initiatives (PFI) projects similar to the teachers' housing project, further bolstering its recurring income base.
Encorp, a mid-sized property developer-cum-contractor, started operations with a RM1.4 billion National Teachers' Housing project for the government. Its two key projects, the RM1 billion "Strand" in Kota Damansara and RM630 million "Cahaya Alam" in Shah Alam, are strategic joint ventures with PKNS, the Selangor state-owned development arm.
We envisage both projects to leverage on the successful adjacent maturing developments, Sunway Giza and Setia Alam, respectively, which have done very well.
Initial launches at the Strand fully sold 265 units of shophouses, with a 69% capital gain reported for units that were sold in the secondary market.
Cahaya Alam's Camelia 1 is fully sold while the second phase is priced 7% higher. We expect a net profit compound annual growth rate (CAGR) of 50% over financial year ended Dec 31, 2009 (FY09) to FY12 driven by its property development projects such as garden SOHO, service apartments at the Strand and Cahaya Alam.
Valuations are attractive with Encorp among the cheapest property/contractors in our universe, trading at a price-to-earnings (PE) ratio of just 10 times FY2011 fully-diluted earnings per share (EPS) and a PE of five times on basic EPS and 0.9 times book value on the back of a three-year EPS CAGR of 50%.
We set our target price at RM1.70, based on 20% discount to our fully diluted sum-of-parts (SOP) value of RM2.10. This is in line with the discount for similar small-cap developers. - HwangDBS Vickers Research, April 27
This article appeared in The Edge Financial Daily, April 27, 2010.
Company Name: ENCORP BHD
Research House: HWANGDBS
Encorp Bhd
(April 27, RM1.16)
Not rated, price target of RM1.70: In our view, the biggest positive for Encorp is its close ties with Perbadanan Kemajuan Negeri Selangor (PKNS) dating back to 2001.
This is positive on two counts. There is a ready pipeline of prime landbank and secondly, it enables Encorp to run an asset-light business model as land cost is paid in stages.
Given its balance sheet has minimal gearing (excluding RM1.16 billion bonds ring fenced for concession), we think the RM137 million raised from its redeemable convertible secured loan stocks (RCSLS) is for further property development with PKNS given the latter's large tract of land in the Klang Valley as well as government-led project financing initiatives (PFI) projects similar to the teachers' housing project, further bolstering its recurring income base.
Encorp, a mid-sized property developer-cum-contractor, started operations with a RM1.4 billion National Teachers' Housing project for the government. Its two key projects, the RM1 billion "Strand" in Kota Damansara and RM630 million "Cahaya Alam" in Shah Alam, are strategic joint ventures with PKNS, the Selangor state-owned development arm.
We envisage both projects to leverage on the successful adjacent maturing developments, Sunway Giza and Setia Alam, respectively, which have done very well.
Initial launches at the Strand fully sold 265 units of shophouses, with a 69% capital gain reported for units that were sold in the secondary market.
Cahaya Alam's Camelia 1 is fully sold while the second phase is priced 7% higher. We expect a net profit compound annual growth rate (CAGR) of 50% over financial year ended Dec 31, 2009 (FY09) to FY12 driven by its property development projects such as garden SOHO, service apartments at the Strand and Cahaya Alam.
Valuations are attractive with Encorp among the cheapest property/contractors in our universe, trading at a price-to-earnings (PE) ratio of just 10 times FY2011 fully-diluted earnings per share (EPS) and a PE of five times on basic EPS and 0.9 times book value on the back of a three-year EPS CAGR of 50%.
We set our target price at RM1.70, based on 20% discount to our fully diluted sum-of-parts (SOP) value of RM2.10. This is in line with the discount for similar small-cap developers. - HwangDBS Vickers Research, April 27
This article appeared in The Edge Financial Daily, April 27, 2010.
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