Salcon Berhad (Salcon)
Current Price : RM 0.685
Target Price: RM 0.90
• In 3QFY13, Salcon’s turnover declined by 11.9% to RM74.14m due to lower contribution from both concession and construction divisions.
• PBT and net profit rose by 87.3% and 41.1% to RM10.95m and RM0.59m due to higher installation income from its concession division.
• For 9MFY13, turnover declined by 8.7% to RM212.51m. However, PBT and net profit grew by 67.0% and 36.3% to RM31.85m and RM4.33m respectively.
• The PBT growth was attributed to higher profitability enjoyed by its concession division.
2. Earnings Outlook
• In Sep-2013, Salcon announced the disposal of all its entire interest in China’s water and wastewater concessions to HKEx-listed Beijing Enterprises Water Group Limited (BEWGL) for RMB955m (approximately RM518.3m). The disposal involves 6 water concessions, 1 wastewater concession and 2 raw water concessions located in Fujian, Zhejiang, Jiangsu and Shandong province with a total design capacity of 1,245 MLD.
• Upon completion, this disposal exercise will bring in total cash of RM284m net of liabilities and result in a disposal gain of RM94.61m (or 15.8 sen/share). Its book value will increase to RM0.91 from RM0.80 as at end-FY12.
• The net cash addition of RM284m (after repayment of borrowings of RM102.4m) will be re-allocated for its expansion into its newly established property development and investment in new income stream. Salcon’s first property project is located in Selayang (Selayang Res 280) with an estimated GDV of RM155m, which features a 21-storey commercial building comprising 12 units of 2-storey shop office and 280 units of SOHO. Since its official launch in Oct-2013, response has been encouraging with 60% of the total units sold. The construction of the project has started since 4QFY13.
• Salcon through its 50.01%-owned Nusantara Megajuta Sdn Bhd (NMSB), had signed a Letter of Intent with Eco World Development Sdn Bhd to jointly develop 2 pieces of land, measuring 51,476 sqm in Johor. This will be Salcon’s second property venture with an estimated GDV of RM1.2b, which will comprise mixed residential and commercial development, strategically located within the Flagship Zone A of the Iskandar Malaysia and approximately 2 km north of the central business district of Johor Bahru. The Johor project is targeted to be launched in 2HFY14.
• Part of the proceeds from the proposed disposal of up to RM30m will be distributed to shareholders via a special dividend or capital repayment.
• Post-disposal, Salcon’s earnings stream will only be derived from its construction division and the newly-established property division. In addition, its 40%-owned Emas Utilities Corporation Sdn Bhd owns 90% interest in Binh An Water Corporation Ltd. which is a concession holder to treat and supply 100 MLD of potable water to Ho Chi Minh city.
• Salcon managed to secure new contracts worth RM210m for FY13. Its current outstanding orderbook of RM330m is expected to be completed within 3 years. It is also tendering for projects worth a total RM2.2b. Amongst the notable projects include Langat 2 water treatment plant in Selangor and Pengerang water treatment plant in Johor.
3. Valuation and Recommendation
• We are maintaining our Buy recommendation on the stock. Post-disposal, the stock is trading at a larger 24% discount to its book value of RM0.91/share.
Publish date: 28/11/13