Current Price : RM 0.64
Target Price: RM 0.78
•In 2QFY13, Salcon’s turnover declined by 3.1% to RM67.58m due to lower contribution from construction division.
• PBT increased by 69.1% to RM10.81m due to higher gross margin enjoyed by its concession division and reduced losses from its construction division.
•For 1HFY13, turnover declined by 6.9% to RM138.36m. However, PBT and net profit grew by 58.1% and 35.5% to RM20.90m and RM3.74m respectively.
• The PBT growth was attributed to higher profitability enjoyed by its concession division and cost savings from projects in its construction division.
2. Earnings Outlook
• Overall, the group earnings will be underpinned by its concession business. The commissioning of Nan An Raw Water (175 MLD) and completion of the acquisition of Wukang and Qian Yua WTPs in 4QFY12 will continue to drive earnings in FY13 and beyond.
• After a slow progress in FY12, Salcon has been able to secure new projects beginning FY13. Year-to-date, it has secured 7 new projects worth a total RM210m to replenish its depleting orderbook. This should help to reduce the losses of its construction division in FY13.
• As part of its business diversification plan, Salcon has ventured into property development. Its first property development project in Selayang has received encouraging response since its soft launch in Apr- 2013, while the second property development in Johor is expected to be launched in 1HFY14.
3. Valuation and Recommendation
• We are maintaining our Buy recommendation on the stock. We like Salcon for its growing earnings contribution from its concession assets in China. Although its share price has appreciated by 56% since the beginning of 2013, the stock is still currently trading at a 17% discount to its book value of RM0.77/share.