A new future – Ageson Berhad (7145)

Ageson Berhad (“AGES”) was formerly known as Prinsiptek Corporation Berhad  - 宏毅集团 (“PSIPTEK”), the company has changed it’s name since December 2019, so what’s so special about this company?

Well, if you look at the company’s latest 2 Financial Year’s track record, you will be amazed that the company profits have been improving tremendously... 

So what drove the sudden spike in the company’s profitability? Let’s take a look into Q4 of FYE 2019, which reported a huge 754% increase in profit after the company’s new substantial shareholder – Dato’ Liew Kok Leong ventured into the company...

As we can see here, the core income from the company is generated via the construction and property development sector (Cumulatively 4 quarters’ result), but why is that special?

If you are familiar with construction cum property development company, you will understand that the business is highly competitive and challenging, only one in a few could achieve a high single-digit net profit margin, and as for double digit net profit margin? That is like a precious gem hidden underneath the sand! You’ve gotta dig for it!

As far as a I concern, the only company that has been able to achieve double digit net profit margin is Kerjaya Prospek Group Berhad (“KERJAYA”), which achieve the net profit margin of the following:

FYE 2017 – 13.16 %

FYE 2018 – 12.96 %

FYE 2019 – 13.29 %

Attached is the company’s net profit margin for past 10 FYE for your perusal.

Having such fantastic profit margin enables Kerjaya to trade at a certain premium, but according to our studies, as at 16^th August 2020, the average construction & engineering group average Price-to-Earnings ratio (“P/E”) is trading at 19.4 times, and the 5 years average P/E of 12.1 times; so what does this tells us?

KERJAYA has not fully reach it’s potential yet. But today we are not going to talk about KERJAYA as it is a more matured company as compared to AGES; now let’s take a look at AGES’s recent net profit margin.

If you’ve noticed, AGES’s net profit margin achieved 17.32% without any one-off item in the recent 4 quarters! How about the valuation? Currently, AGES is trading at 5.75 times P/E, in other words almost only half the valuation of KERJAYA!

Let’s assume AGES could maintain the current profit of RM 10.3 Million and we discount it with 20% for the whole Financial Year (Herein refer to FYE 2021); here’s how the profits will look like:

FYE 2020 Q4 – RM 8.24 Million (Discounted 20%)

FYE 2021 Q1 – RM 9.27 Million (Discounted 10%)

FYE 2021 Q2 – RM 7.21 Million (Discounted 30%)

FYE 2021 Q3 – RM 10.30 Million (No Discount)

Upcoming 4 quarter’s profit – RM 35.02 Million

Say we give AGES a conservative valuation of 8 times, the market cap would be RM 280.16 Million, hence a potential upside of 107.4% from the current price of RM 0.150!!

But wait, we know that KERJAYA may continue to hit double digit net profit margin, but how can we be sure about AGES?

Having in-depth studies of AGES recent corporate development and emergence of new shareholders, I realized a shift in business model in the company. As for now, the company is more onto EPCC & its property development business model is unique compared to others, which would involve extremely low initial capital investments!

*The company’s current GDV is roughly RM 700 Million – RM 800 Million.

Hence, it is very easy for them to maintain the property development profit margin, apart from that, the company does have a ultra-high potential silica sand supply division which is yet to be identified by the market!

The said division is expected to be RM 27.5 – 28 Billion in total contract sum, although there has been some issues about the status of the project to go all at once, AGES has begun to receive contracts in the sand supply division. For example, recently AGES has secured a RM 339 Million worth of contract from Techpack Solutions Co. Ltd. (“TECHPACK”) to supply silica sand to them.

As of now, AGES is supplying from 30,000 to 50,000 tonnes of “trial order silica sand” to TECHPACK per month, and may increase to 100,000 tonnes per month in the future, for 5 years.

TECHPACK is a member of Dongwon Group in Korea and they account for 40% of glass bottle market share in Korea!

Based on the project size, AGES could bag around RM 17 Million on a quarterly basis, and taking a conservative profit margin of 7%, there’s additional RM 1 – 1.5 Million net profit added to the company; remember, this has not factor in the profit valuation we mentioned above!

Again, AGES’s business model does not require them to throw in big amount of capital investment into the sand supplying division as well!

Overall, based on my conservative valuation for the company at RM 280.16 Million, the value of AGES should be at least RM 0.310! But is this a buy call? No, I’m just sad that the company has not shown it’s true value yet.. However, RM 0.150 is a ultra safe price for me to collect more! Hahaha!

Disclaimer: This article is purely for sharing and educational purposes. All investment decision should be made after due diligence and research and this article should and will not be served as a Buy or Sell Call.