MIDF positive on Vivocom earnings, maintains ‘Buy’ call


MIDF Investment Amanah Bhd has maintained its ‘Buy’ call on ACE Market-listed Vivocom International Holdings Bhd with a target price of 40 sen per share based on discounted cashflow with weighted average cost of capital of 7.4%.

In a report released yesterday, MIDF’s target price implied an enticing 347% upside backed by an undemanding current price earnings ratio of 9.5 times.

The positive call came after MIDF met Vivocom ED Choo Seng Choon (pic), who reassured MIDF of its earnings estimates.

“Year-to-date, Vivocom share price decreased 36.1% and comparatively, 53.6% from its high in May last year.

“We attribute the tumble to bad press and market cyclicality. Guided by our observation, Vivocom presents a very attractive yield of 10.5% on the back of a 6.75% spread against the five-year Malaysian Government Securities yield of 3.76%,” the investment firm said.

MIDF said Vivocom’s management stresses on maintaining margin through a concentration of design and build contracts, as well as affordable housing.

“The management has indicated that the margins are attainable, albeit blips in between progress billings and revenue recognition, due to the total orderbook size of RM2.3 billion inclusive of projects from Neata Aluminium (M) Sdn Bhd,” the firm said.

It added that Vivovom’s revenue is projected to grow for the financial year ending 2018 (FY18), supported by stronger turnover growth and profit margin compared to the company’s peers.

Commenting on Vivocom’s affordable housing segment, MIDF said the company’s management has indicated that Perak and Terengganu present stable opportunities as the demand is continuous.

“Looking at Perak, the demand of residential projects has maintained its growth trajectory.

“Similarly in Terengganu, residential projects are stable notwithstanding smaller scale,” MIDF stated in the report.

Currently, Vivocom’s construction orderbook stands at RM1.8 billion, or approximately two times FY17 revenue cover.

“We expect Vivocom to replenish RM600 million worth of jobs for FY17/FY18/FY19, led by affordable housing and mixed development,” MIDF said.

However, it is also noted that the capital control imposed by People’s Bank of China for state-owned enterprises could slowdown progress for project bidding.

The news spooked property developers targeting mainland Chinese buyers, but for design and build contractors such as Vivocom, opportunities for rail-related projects are abound.

“As for financing, we reckon that China Construction Bank Corp — which started operation in Malaysia in early June — would lend support to China Railway Construction Corp Ltd. Therefore, Vivocom would unlikely be in a tight spot for project funding or payment,” MIDF added.