Driven by contribution from KP Mukah, new projects, as well as improved rates for contract renewals, GFM’s 1Q19 PBT surged 83% YoY and 225% QoQ to RM7.5m, respectively. Management is upbeat on earnings prospects moving forward, underpinned by growing IFM market in Malaysia, solid RM1.38bn orderbook and is targeting to secure the subsequent full-scale contract for the provision of FM services for luxurious BBCC project. GFM is currently trading at 9.7x P/E (18% discount to its peers and 58% below its 3Y average of 23.2x). Moreover, GFM is likely to attract more institutional investors once its application to transfer to the Main Market is successful. Technically, the stock is poised to breach 200D SMA resistance at RM0.47, before moving higher to RM0.505-0.565 zones.

Company profile. GFM is a facilities management service provider in Malaysia. Its IFM services include: (i) Hard FM eg mechanical systems, electrical systems, civil, structural and plumbing services; (ii) Soft FM Services eg cleaning, housekeeping, landscaping, pest control and security management; (iii) Advisory eg process planning & advisory, review of designs & facility conditions and training.

In Nov 2017, GFM has successfully completed the 100% acquisition of university asset concessionaire, KP Mukah Development Sdn Bhd (KPMD) for RM122.5m, which holds a 23-year concession awarded by the Government of Malaysia and Universiti Teknologi Mara (UiTM), covering 3 years of the design and construction of UiTM Mukah campus in Sarawak and 20 years for the provision of facilities management services ending 2035 (with outstanding orderbook ~RM1bn).

Meanwhile, GFM is now providing FM consultancy services for the Bukit Bintang City Centre (BBCC) project and is targeting to secure the subsequent full-scale contract for the provision of FM services for BBCC. To recap, BBCC is joint-venture development by the Employees Provident Fund, Eco World Development Group Bhd and UDA Holdings Bhd. The mixed residential and commercial development is situated on a 19.4-acre former Pudu Prison site in KL, with a total gross build-up area of 6.7m sq ft and a gross development value of RM8.7bn.

Growing reception for the IFM business from both the public and private sectors. Frost & Sullivan estimates that the local IFM market is set to earn increased revenues of up to RM7.43bn in 2022 from RM4.79bn in 2017, recording a robust CAGR of 9.17% during this period. This growth is being mainly driven by increasing demand from the public and private sectors. Overall, GFM delivers FM to organisations and allowing them to focus on their core activities and business and minimises unnecessary costs that can be incurred by inefficient FM processes.

Bullish downtrend line breakout to lift prices higher towards RM0.47-0.505 zones. After sliding 26.5% from 52-week high of RM0.565 (8 Apr) to a low of RM0.415 (14 May), GFM rebounded 9.6% to end at RM0.455 yesterday (cum 1.1043 sen dividend ex 4 July), staging a bullish downtrend line breakout. In wake of the bottoming up technical readings, the stock is likely to surpass the 200D SMA resistance near RM0.47 and advance further towards RM0.505 (61.8% FR) zones. Formidable resistance is located at RM0.565. Conversely, failure to break above RM0.47 will witness a retracement back towards RM0.43 (lower Bollinger band) and RM0.415 levels. Cut loss at RM0.41.

Source: Hong Leong Investment Bank Research - 3 Jul 2019