Reputable earthworks specialist. We like Advcon due to its established reputation in earthworks/civil engineering services for blue chip property developers and has successfully diversified into infrastructure segment with some high profile projects i.e. the West Coast Expressway (WCE), Pan Borneo Sarawak and South Klang Valley Expressway. Considering that almost 90% of its revenue has been coming solely from its earthworks and civil engineering services segment, Advcon has decided to diversify into renewable energy (RE) business in June, and expects it to make about 25% of its net profit within the next 3-5 years. Valuation are undemanding at trailing 13.2x P/E (11% lower than its peers) and 0.75x P/B (55% lower than average 1.7x P/B), supported by a strong orderook at RM705m (minimum earnings’ visibility for 18 months) and RM1.5bn tender book, including earthworks and civil engineering works for the ECRL, various road works in Sarawak and the Upper Rajang Development Authority.

Uptrend remains intact. Following a 126% surge from Covid-19 low of RM0.21 (17 March) to a high of RM0.475 (15 June), Advcon’s share price corrected 24% to end at RM0.36 yesterday. As long as the crucial uptrend line support from RM0.21 is not violated, the stock is expected to recapture above the key 200D SMA resistance at RM0.375 after a brief sideways trade, pending the grossly oversold technical indicators to tick up soon. A successful breakout above RM0.375 will lift share prices higher towards RM0.41 (23.6% FR) and our long term objective at RM0.475 (52-week high). Key supports are RM0.345 and RM0.33 (100D SMA) levels. Cut loss at RM0.32.

Source: Hong Leong Investment Bank Research - 30 Jun 2020