After a throughout and in-depth study on the fundamentals of the company, we determined that AGESON BERHAD (“AGES”) deserved a better valuation, and a BUY call was recommended at 8.7x PER for CY 2021 and arrived at a TP of RM0.210 (Appx. 75% upside).

Recap. AGES’s 2021FY3Q comes in lower in revenue and net profit of RM48.8 million and RM6.2 million, respectively. Based on the quarterly report, it was noted the downfall was mainly caused by lower development activities and lower construction revenue recognition.

Challenging outlook. The construction landscape is proved to be more challenging in 2021CY with the implementation of FMCO. A crude consumption would be lower construction activities in 2021CY2H coupled with political uncertainty. In May, the general construction sector performance had contracted by 8.28%.

Undermining value. Surprisingly, despite the implementation of various phases of MCO in 2020CY, the company managed to maintain its buoyancy in recording continuous profitability. As a result, the company recorded RM38.9 million in net profit after tax for 2020FYE. For 2021FY9M, the company registered a total net profit of RM23.7 million. This is inline with our 2021FYE estimation of RM32.1 million in net profit.

Healthy cashflow. With RM9.0 million in cash and minimal debt level of RM3.0 million, AGES remains as a net cash company. Our screening on 58 listed construction companies in Bursa Malaysia had only returned 9 companies with net cash composition.

Risk in trade receivables. Alongside with the increase in both top and bottom line, the trade receivables had increased from RM53.7 million in 2020FY9M to RM81.6 million in 2021FY9M, representing an increase of 52% in working capital.

Worst is over. From the tone of the management in both quarterly reports and annual report, the management continues to show confidence in managing AGES through rough waves. Based on a reasonable industry average PER of 8.7x, AGES deserved a better upside potential to RM0.210. Our mid-term TP for 2021 remains at RM0.210 and BUY recommendation was issued on today.

Published By: Blue Moon Capitals Ltd