Investment Highlights

• Maintain BUY on Vestland with an unchanged fair value of RM0.70/share, based on FY25F PE of 9x – the average for small-cap construction companies, plus 3% premium for its superior ESG rating of 4 stars.

• 1HFY24 net profit of RM16.2 mil (+1% YoY) made up 31% of our full-year FY24F earnings. We deem this as in-line as 2HFY24 earnings will be higher as the company realise more jobs during the period.

• 2QFY24 net profit of RM8.6 mil (+6.5% YoY, +13.8% QoQ) was driven by higher revenue generated (+94% YoY, +19% QoQ) on good progress of D’vine Residence, Beluran Police Camp and Subang Jaya SOHO projects.

• YoY, 2QFY24 net profit margin of 5.8% was 4.8 percentage points (PPT) lower as financing cost soared 3.4x. The business is in a capital-heavy stage due to pre-funding and acquiring machinery ahead of upcoming job flows, therefore incurring significant costs with disproportionate revenues in 1H24.

• As such, the net gearing ratio has increased to 0.91x versus the previous quarter’s 0.82x. Management stated that 2QFY24 is at peak debt levels, which should recede going forward as billings will accelerate and trade receivables become due.

• t-12 ROE is at 16.4%, which is lower than 2023’s 18.1%.

• Vestland’s latest orderbook is at RM1.9bil, largely unchanged from the previous quarter.

• YTD, Vestland has secured RM400mil in new orders. Management is targeting RM800mil-RM1bil job wins in 2024 to replenish its orderbook.

• The outlook statement is positive, citing smooth progress in current job flows and generally conducive working environment. The cost environment is mixed, concrete prices have risen but other building materials such as steel and plaster have declined.

• Vestland is currently trading at only 6.5x FY25F P/E, which is a deep discount to its peers that trade at 8x-28x. It is a significant laggard among construction players.

Source: AmInvest Research - 27 Aug 2024