• Metamorphosing from a metal-roll forming and safety-glass manufacturer to an integrated green building solutions provider. Today, Ajiya (listed in Dec 1996) has metamorphosed from simply being a metal-roll forming and safety-glass (with only single digit PAT margin) processing company to become an integrated green building solutions provider, with its new value offering via the high PAT margin Ajiya’s Green Integrated Sys tem (AGIBS). In the last 2-3 years, Ajiya is actively forming partnerships with domestic and regional strategic partners in collaborating and exploring potential business opportunities.

• What is AGIBS? The AGIBS represents groundbreaking innovation in the construction industry, driven by its environmentally-friendly and systematic installation which requires less resources. AGIBS is a lightweight steel framing system specifically designed to include trussed headers and pre-punched multiple service holes metal studs and recesses dimples for easy assembly and ensure a flush finish, reinforced with expanded metal rib lath and plastering on both sides of the wall which is filled with cement to enhance performance in terms of water absorption, permeability, sound transmission and impact strength.

• In view of the local and regional governments’ efforts to build affordable housing schemes and implementation of people-centric projects, the AGIBS innovative solution is expected to play a vital role in the Group’s trajectory in the domestic and regional markets in the medium to long term. Overall, the Group will be moving towards providing a total solution for the property and construction sectors, focusing on reducing labour requirements and construction time through technologies and quality of the Group’s products .

• Look beyond FY16 as more contribution is expected from higher margin AGIBS starting from FY17. QoQ, 3Q16 earnings jumped 454% to RM5.4m despite a flattish revenue growth, mainly driven by increased margins of certain products and greater contributions from the AGIBS. As AGIBS is just started to contribute more meaningfully in 3Q16, Aji ya’s 9MFY16 res ults remained s luggis h following slower pace in the construction and property sectors, reflected by a 7% and 44% decline in revenue and PATAMI to RM100m and RM9.4m, respectively. Nevertheless, we see the strong 3Q16 showing to sustain in 4Q16 and FY17/18 as AGIBS is expected to gain further tractions to account for 10-15% of the group’s revenue (from <10% in FY16) and improve further towards 15-20% in FY18.

• Limited downside amid expectations of improving results, steeply oversold levels and solid balance sheet. AJ IYA’s s hare prices tumbled 30% from a 52- week high of RM1.11 (19 Jul) to clos e at RM0.78 yesterday. The sluggish performance was mainly due to i ts weak 9MFY16 results and also partly due to profit taking consolidation post the 1:4 subdivision (ex-date 4 Aug) and 1:2 bonus warrants (ex-date: 22 Aug) corporate exercises.

• We see limited downside risks for AJIYA in the near term, in anticipation of improving upcoming results, strong support by netcash/share of 17.4sen (equivalent to 22% of share price) and deeply oversold indicators. At RM0.78, AJIYA is trading at 10.8x P/E (annualizing 3QEPS) and 0.75x P/BV, in line with its average 10-year 10x P/E and 0.8x P/B. Ex-cas h, Ajiya’s P/E is only 5.9x!

• A decisive breakout above RM0.80 (30-d SMA) will spur prices higher towards RM0.855 (23.6% FR) and our LT objective at RM0.90 (38.2% FR) before reaching our LT objective at RM0.945 (50% FR). On the flip side, key supports are RM0.76 (120-w SMA) and RM0.715 (150-w SMA). Cut loss at RM0.71.

Source: Hong Leong Investment Bank Research - 27 Oct 2016