Advancecon bullish on FY20

The firm recently listed as one of RHB Research Institute’s 20 small-cap jewels for 2020


EARTHWORKS and civil engineering company, Advancecon Holdings Bhd, expects to remain profitable for its financial year ending Dec 31, 2020 (FY20), underpinned by the resumption of construction projects following the relaxation of pandemic containment measures.

The construction sector has experienced some of the biggest negative chain effects as construction works were temporarily halted since March 18 in compliance with Malaysia’s Movement Control Order (MCO).

This resulted in the sector — which accounts for almost 5% of the country’s estimated RM1.3 trillion economy — tanking since the MCO was imposed, but a recovery is now expected with the relaxation of selective construction activities.

“We are gradually resuming operations on-site after construction sites were given approval by the Ministry of International Trade and Industry in end-April to recommence critical activities.

“(This was) on the condition that foreign workers had undergone and passed Covid-19 tests. All our project sites have recommenced work to date,” Advancecon co-founder and CEO Datuk Phum Ang Kia (picture) told The Malaysian Reserve.

The government’s pledge to continue implementing all projects announced in Budget 2020, including the East Coast Rail Link (ECRL) and Kuala Lumpur-Singapore High-Speed Rail, also offers opportunities in earthworks and civil engineering services.

Last traded at 43 sen apiece for a market capitalisation of RM173.69 million, Advancecon was recently listed as one of RHB Research Institute Sdn Bhd’s 20 small-cap jewels for 2020.

It has a price-earnings ratio of 15.61 times and a 1.4% dividend yield on a trailing 12-month basis, according to Bloomberg data.

“It may be preliminary to predict accurately the implications of the MCO, but we are optimistic that FY20 earnings will remain in the black, albeit lower,” Phum said.

Advancecon made a net profit of RM10.83 million in FY19, up marginally from RM10.62 million the year before. Revenue last year was 10.6% stronger at RM301.66 million versus RM272.86 million in FY18.

Earnings for the first quarter ended March 31, 2020 (1Q20), are not projected to be significantly impacted by the MCO, Phum added. The group is expected to announce its 1Q20 results on June 25.

Currently, the firm is bidding for more than RM1.5 billion worth of contracts, including for the ECRL, various road works packages in Sarawak, and residential townships.

“We target to secure RM300 million worth of new awards this year and we believe that our good track record in securing pivotal infrastructure projects like the West Coast Expressway (WCE) and Pan Borneo Highway should place us in good stead,” Phum said.

As of Dec 31, 2019, the group’s orderbook stood at RM763 million, with earnings visibility for at least 24 months. It has a replenishment target of RM300 million.

Included in its current orderbook are the WCE, South Klang Valley Expressway, Pan Borneo Highway and new roads under the Upper Rajang Development Agency in Pelagus/Baleh, as well as works for property projects such as Setia Alamsari (South), Eco Ardence, Nilai Impian and Serenia City.

Bank Negara Malaysia’s move to cut the Overnight Policy Rate by 50 basis points to 2% last month could also stimulate further housing purchases, which augurs well for the company.

“This is likely to spur further progress and launches of residential construction projects,” Phum said.

“There could be an indirect spillover effect for Advancecon — we have a track record in securing earthworks contracts from repeat customers such as SP Setia Bhd, Sime Darby Property Bhd and Eco World Development Group Bhd.”