We like ADVCON as it has built a reputation in earthworks jobs for blue chip property developers and has successfully diversified into infrastructure segment with two high profile projects i.e. the West Coast Expressway (WCE) and Pan Borneo Sarawak. Valuation is cheap at 8.6x FY19E P/E (26% lower than its peers), supported by strong RM845m order book and RM1.6bn tender book coupled with more jobs in the pipelines from the potential revival of the shelved mega infrastructure projects such as the Klang Valley Double Track, ECRL and MRT 3. Technically, the potential rounding bottom formation (with a strong breakout above YTD high/overhead resistance at RM0.46) could spur prices higher towards RM0.50-0.57 territory.

An earthwork specialist with over 22% market share. Established in 1990, ADVCON is an established specialist contractor primarily involved in integrated earthwork and civil engineering services in Malaysia and it is a CIDB registered Grade “7” contractor, providing services such as site clearance, rock blasting, excavation, roadworks, drainage works, bridge construction, water reticulations and reservoirs, and sewerage systems as well as support services such as sale of construction materials, hiring of machinery and ad hoc general construction services/ daywork.

Reputable clientele. According to Protégé Associates, ADVCON accounted for 22% of the Malaysian earthworks market in 2016. Over the years, the group has built a reputation for delivering quality earthworks and civil engineering services and manage to secure projects from blue chip property developers such as Eco World, SP Setia, MRCB, PKNS, Sime Darby Group, Tropicana, Paramount, MKH and etc. Meanwhile, ADVCON has also successfully diversified into infrastructure projects with two high profile projects – the West Coast Expressway (WCE) and Pan Borneo Sarawak.

Strong order book of RM845m and another RM1.6bn tender book as at end Dec 2018. With more than 10 ongoing projects, ADVCON’s outstanding order book currently stands at RM845m which will sustain the group earnings until FY21. Overall, ADVCON remains confident of its RM300m new order wins forecast for FY19 with its current tender book of RM1.6bn, which includes infrastructure projects such as Sarawak Coastal Road, Second Trunk Road, as well as water supply and electricity connectivity jobs and projects under the Public Works Department (JKR). In the property development sector, it has established relationships with active developers such as Sime Darby Property and Eco World that are repeat customers. On the other hand, potential revival of the shelved mega infrastructure projects by end 4Q19, including the Klang Valley Double Track, ECRL and Klang Valley MRT 3 etc should present pipeline of job opportunities,.

LT positive amid potential rounding bottom formation. The rounding bottom (or saucer bottom) pattern represents a long consolidation period that turns from a bearish bias to a bullish bias. Given the firmer closing above multiple key (20D/50D/100D/200D) SMAs, we can expect follow-through buying interest to emerge towards critical overhead resistance at RM0.46 (YTD high on 18 Mar). A strong breakout would lift prices higher to RM0.50 (psychological barrier) and our LT target at RM0.57 (26 July 2018). Key supports are RM0.41 (50% FR) and RM0.40 (30D SMA). Cut loss at RM0.38.

Source: Hong Leong Investment Bank Research - 8 Apr 2019