Investment Highlights

• We initiate coverage on Vestland with a BUY call and fair value of RM0.62/share. This is based on FY25F PE of 9x ─ the average for small-cap construction companies, plus a 3% premium for its superior 4-star ESG rating.

• Vestland is a domestic contractor focusing on residential properties ranging from affordable to upper-middle class. Majority of its business is in Design & Build (D&B) projects, followed by conventional building projects. It also does civil engineering work, but it is a small part of its operations. Going forward, it will focus more on D&B projects.

• Vestland’s key attractions are: (1) a leader in value engineering (VE) which integrates advanced technology and services to optimise project design for maximum returns; (2) a savvy management team and staff that is lean and efficient with an unblemished track record; and (3) an order book of RM2bil as at end of 1Q2024 that will keep it busy over the next 2-3 years. Moreover, its tender book of RM2.9bil is made up of high-yielding projects.

• VE concept is the way of the future, as construction costs are rising faster than the CPI and labour availability is becoming increasingly scarce. Additionally, in a higher interest rate environment, there is a greater emphasis to complete projects on schedule, if not sooner, which is the hallmark of VE.

• Vestland is very selective in choosing its customers. It avoids clients who seek showcase or centerpiece projects but instead partners with those focused on sensible and affordable projects. Its top three clients, who have a strong track record, contribute 68% of its FY23 revenue and are repeat customers.

• We are impressed by Vestland’s ESG practices, which utilise the latest technology to reduce material consumption and emissions. It also employs construction methods that enhance safety. The majority of the board are independent directors, and the chairman does not serve on any committees. Female representation is also fairly high in the senior management team.

• Vestland is currently trading at only 5.7x FY25F P/E, which is a deep discount to its peers that are trading at 8-28x. We think this is compelling relative to its growth prospects (3- year earnings CAGR of 22.3%) with a PEG ratio of 0.26x. However, Vestland does not pay dividends as the company is at a high growth stage and requires vast capital. VESTLAND 13 Jun 2024 INTRODUCTION EXHIBIT 2: BUSINESS SEGMENTS ❑ University buddies with a vision to be a top regional contractor Vestland is a CIDB G7 contractor with principal business of constructing residential and non-residential buildings as well as undertaking civil engineering works. Its history began in 2011 when a group of university friends with backgrounds in quantity surveying decided to open a construction company. They initially undertook modest residential, commercial, and industrial projects. Over time, they successfully built their reputation and secured larger contracts, including government projects. Their key milestones are shown on Exhibit 1 below.

Source: AmInvest Research - 13 Jun 2024