• Business profile. AWC assumed the listing status of Trans Capital Holding Bhd in Sep 03. Over the last 13 years, the group has developed into an established integrated facilities management, environment solutions and engineering services player in Malaysia with a regional presence in Asia and the Middle East. As at 1H FY6/2016, the facilities management, environment solutions and engineering services contributed 51%, 27% and 22% to the group’s revenue, res pectively.
• Undemanding valuation with potential resumption of dividend payout in FY16 and FY17. After reaching YTD high of RM0.485 on 14 Apr, share price retraced 7.2% to a low of RM0.45 on 18 Apr before closing at RM0.455 yesterday. Currently, AWC is trading at estimated 10.9x FY16 P/E (5% below its 5-yr average historical of 11.5x). Excluding net cash of RM60m or 23sen/share (equivalent to 50% share price), AWC is only trading at 5.4x P/E!
• Hence, given its abundant netcash and expectations of stronger FY16 (1H EPS already accounted 62% of FY15 EPS) and FY17 results (will be further enhanced by the profit guarantee from recently acquired M&E companies i .e. QUDOTECH & DDT as well as the 10-year renewal of its concession to maintain government buildings and critical asset refurbishment worth a total of RM700m), AWC has solid financial position to declare dividends in the near future after taking a break in FY14 & FY15.
• Poised for a bullish ascending triangle breakout. After trapped in a 4-month consolidation, we believe AWC is ripe for a bullish ascending triangle breakout soon, as long as share price is able to hold near uptrend line support. A convincing breakthrough above RM0.475 will spur prices higher to retest RM0.50 psychological barrier and RM0.56 levels (the ascending triangle breakout measurement objective).
• On the flip side, a decisive breach below RM0.44 (lower Bollinger band) will lead share price heading lower towards RM0.425 (100-d SMA). Cut loss at RM0.42
• Attractive risk to reward ratio with 23.1% upside against 7.7% downside. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM0.455 given that the downside to the cut loss zone of RM0.42 is 4sen (-7.7%) while the upside to the LT target of RM0.56 is 10sen (+23.1%).
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Source: Hong Leong Investment Bank Research - 20 Apr 2016