Advancecon sees prospects intact
CEO says change in government has little impact on company’s order book
Salient points MALAYSIA’s construction scene may seem less exciting now that the new Government is reviewing several mega infrastructure projects, but earthworks and civil engineering services provider Advancecon Holdings Bhd believes its prospects remain intact.
With over 25 years of experience in the industry, Advancecon is currently backed by an order book of RM936.4mil, which provides earnings visibility until end-2020.
Interestingly, two-thirds of its order book represents earthworks and civil engineering services for infrastructure-related projects, while the remaining 33% constitutes similar works for the property development segment.
Despite its significant exposure in infrastructure-related projects, Advancecon co-founder and group chief executive officer Datuk Phum Ang Kia tells StarBizWeek that the change in ruling coalition will have minimal impact on its order book.
“We are optimistic of the recent announcement by the new federal government that mega infrastructure projects will be awarded via open tender and competitive bidding.
“Furthermore, with regards to the review of existing infrastructure projects and the abolishment of toll by stages, we do not expect any adverse impact to our existing infrastructure projects, going forward.
“We are still actively tendering for projects nationwide. We will continue doing what we are known best for, and that is in the earthworks and civil engineering industry,” he says. Phum is the single largest shareholder in Advancecon, with an equity interest of about 24%.
Currently, the company continues to actively bid for more township development projects by leveraging on its expansive technical expertise.
Phum points out that Advancecon’s tender book value has breached the RM1bil mark.
Advancecon was listed on the Main Market of Bursa Malaysia on July 10, 2017. With a market capitalisation size of nearly RM162.8mil, the earthworks specialist has an undemanding valuation in terms of price-toearnings ratio of 1.7 times.
In its latest Top Malaysia Small Cap Companies 20 Jewels book, RHB Investment Bank Bhd has recognised Advancecon as one of the small-cap counters worth looking at.
Breaking down Advancecon’s top line in the first quarter ended March 31, construction services contributed 91.1% of its overall revenue.
Of the 91.1%, 66.5% constitutes earth- works while 24.6% constitutes civil engineering services. Support services and property investment contributed the remaining 8.9%.
To date, the group has offered earthworks services for notable projects nationwide, including various township developments such as Bandar Setia Alam, Setia EcoHill, Eco Majestic and Tropicana Aman.
Among the property developers that partnered with Advancecon are Gamuda Bhd, Sime Darby Property Bhd, SP Setia Bhd, Tropicana Corp Bhd and Eco World Development Group Bhd.
As for civil engineering services, Advancecon was involved in the construction of highway interchange such as the Trumpet Interchange and Ecohill Link, both connected to Lebuhraya Kajang Seremban highway. Currently, it is also undertaking the construction of mega infrastructure projects for West Coast Expressway and the Pan Borneo Highway.
Registered as a “Grade 7” contractor registered with the Construction Industry Development Board, Advancecon is qualified to tender for the Government’s projects with unlimited value.
On Advancecon’s growth strategies moving forward, Phum says that the company will focus more on securing larger-scale projects in both property development and infrastructure segments.
“We are targeting larger-scale contracts above RM50mil. We are also eyeing for residential and commercial property development projects as well as public infrastructure projects such as construction of roads and highways.
“At the same time, we are working hard to maintain progress billings and improve efficiency, he says.
Speaking about the group’s de-leveraging initiative, Phum says that the management will moderate Advancecon’s capital expenditure (capex) in the current financial year of 2018 (FY18).
This is largely because the company has invested substantially in machinery in the past year.
“Our net gearing level was at 0.55 times, as at March 31, 2018. Going forward, we expect our net gearing level to reduce as we moderate our capex.
“We aim to reduce our net gearing level to a comfortable 0.5 times eventually,” he says.
For context, as at March 31, the group’s debt stood at about RM97.13mil, as compared to its cash and bank balances worth RM21.21mil.
Share price-wise, the stock, which has a dividend policy of a minimum 20% of its bottom line, rose to RM1.20 on Nov 1, 2017 from its initial public offering price of 63 sen per share.
However, the counter has largely been on a downtrend since November last year.
The trend is similar to many small-cap counters on the local stock exchange, as investors switch to defensive blue chips ahead of the 14th general election.
Year-to-date, Advancecon’s share price had fallen by nearly 53%, presenting a buying opportunity.