Stock Name: SALCON
Company Name: SALCON BHD
Research House: OSK
Salcon Bhd
(April 6, 72.5 sen)
Buy at 72 sen, target price of 81 sen: In 2004, Salcon Bhd underwent a major change in substantial shareholders who initiated a revamp of its entire business structure. Its main shareholder, Naga Muhibbah Sdn Bhd, took over from previous shareholder Kumpulan Emas.
The makeover, which involved the divestment of various small businesses, one of which was insurance, led to Salcon refocusing on its core operations of water engineering and construction.
The latest change in Salcon also entails the inclusion of its China-related water and wastewater concession as part of its key operation.
Salcon's construction and engineering order book stood at RM1.2 billion as at end-FY09. Of this amount, the outstanding order book is worth RM576 million.
With its current tender book at RM1.5 billion, Salcon is poised to secure jobs worth RM300 million to RM450 million this year, based on its historical success rate of 20% to 30%. We see the construction and engineering division increasing revenue by 35.5% in FY10. Its order book could well enlarge in FY11 on the back of its growing exposure to overseas projects, namely in Thailand, Vietnam, India and Sri Lanka. Salcon has to date secured eight water and wastewater concessions, one of which is in Vietnam and the rest in China.
Apart from providing a recurring income, we see Salcon's concession holdings division contributing approximately 20% to 30% of its bottom line earnings every year. In the next two to three years, we see Salcon securing more China-related concessions.
We peg Salcon with a buy recommendation. We ascribe a 12-month target price of 81 sen for Salcon, which translates into an upside of 12.5% based on its current share price. The stock's target price is based on a sum-of-parts (SOP) approach valuing its concession operations at 41 sen with a weighted average cost of capital (WACC) of 12%, while applying a price earnings (PE) of nine times on its FY10 construction earnings per share (EPS) of four sen.
Our nine times construction PE is based on the average PE for small-cap construction companies - OSK Research, April 6
This article appeared in The Edge Financial Daily, April 7, 2010.
Company Name: SALCON BHD
Research House: OSK
Salcon Bhd
(April 6, 72.5 sen)
Buy at 72 sen, target price of 81 sen: In 2004, Salcon Bhd underwent a major change in substantial shareholders who initiated a revamp of its entire business structure. Its main shareholder, Naga Muhibbah Sdn Bhd, took over from previous shareholder Kumpulan Emas.
The makeover, which involved the divestment of various small businesses, one of which was insurance, led to Salcon refocusing on its core operations of water engineering and construction.
The latest change in Salcon also entails the inclusion of its China-related water and wastewater concession as part of its key operation.
Salcon's construction and engineering order book stood at RM1.2 billion as at end-FY09. Of this amount, the outstanding order book is worth RM576 million.
With its current tender book at RM1.5 billion, Salcon is poised to secure jobs worth RM300 million to RM450 million this year, based on its historical success rate of 20% to 30%. We see the construction and engineering division increasing revenue by 35.5% in FY10. Its order book could well enlarge in FY11 on the back of its growing exposure to overseas projects, namely in Thailand, Vietnam, India and Sri Lanka. Salcon has to date secured eight water and wastewater concessions, one of which is in Vietnam and the rest in China.
Apart from providing a recurring income, we see Salcon's concession holdings division contributing approximately 20% to 30% of its bottom line earnings every year. In the next two to three years, we see Salcon securing more China-related concessions.
We peg Salcon with a buy recommendation. We ascribe a 12-month target price of 81 sen for Salcon, which translates into an upside of 12.5% based on its current share price. The stock's target price is based on a sum-of-parts (SOP) approach valuing its concession operations at 41 sen with a weighted average cost of capital (WACC) of 12%, while applying a price earnings (PE) of nine times on its FY10 construction earnings per share (EPS) of four sen.
Our nine times construction PE is based on the average PE for small-cap construction companies - OSK Research, April 6
This article appeared in The Edge Financial Daily, April 7, 2010.
No comments:
Post a Comment