INVESTMENT MERIT

- Under the limelight? The Edge Weely recently highlighted that there could be growing interest in Encorp after the management buyout by its top management comprising  the CEO, Yeoh Soo Ann and COO, Mohd Ibrahim Masrakin of the entire 30.6% stake in the company from the Executive Chairman,  Datuk Seri Effendi Norwawi. 

- A better tomorrow? However, apart from the abovementioned reason, we believe that the strong share  price performance could also be attributed to the fact that the street is expecting significant earnings improvement from  2Q13 onwards. 

- Brief Financials. Recall that in 1Q13, the group registered a net loss of RM5.1m despite a higher revenue of RM72m (+72% YoY) due to higher marketing and distribution expenses incurred for property development projects and finance cost arising from the Sukuk Murabahah issued in previous financial year. It is believed that its profitability relies mainly on 100%-owned Puteri Harbour Marina project in Iskandar Johor, which has recorded approximately RM600m unbilled sales out of the total RM900m that the Group has registered thus far. Besides, we also understand that its projects in Cahaya Alam and Kota Damansara are doing well. Coupled with a new RM200m project in Batu Ferringgi, which is expected to be launched in early-2014, we believe that these unbilled and potential new sales will sustain its property development revenue churn of between RM400m to RM500m in the next 2-3 years. As  such, the Group is expected to register more than RM500m-RM600m p.a. for the next 2-3 years as its concession division is contributing a fixed RM110m revenue p.a.. Besides,  we also understand that its latest construction orderbook also stands at RM550m, which will keep the Group’s construction division busy for the next 2-3 years as well.

- Still more upside from here? Although the share price has registered a record high of RM1.17 from RM0.62 in early July (+89%), we believe this under-researched and under-valued stock still has much to offer. As at end-Mar 13, its book value and NTA stood at RM1.55/share and RM1.10/share. Based on our back-of-envelope calculations, the RNAV per share ranges from RM1.85 to RM2.30. Based on a conservative 40% discount, the share is valued at between RM1.11-RM1.38 per piece, averaging at RM1.25 and still offering at least another 10% upside from here.  A TRADING BUY with an initial target price at RM1.25 (and RM1.38 next).

TECHNICALS

- Resistance: RM1.26 (R1), RM1.34 (R2)

- Support: RM1.08 (S1), RM0.985 (S2)

- Comments:  The share price has risen 75% in the last three weeks. Even so, the buying momentum remains strong with explosive buying volume. Hence we are bullish on the stock, aiming at RM1.26 (measurement objective) as a short-term target.

BUSINESS OVERVIEW

Encorp was listed on the Main Board of KLSE on 11 February 2003 upon completion of the reverse take-over of Great Wall Plastics Industries Berhad (“GWPI”). It is an investment holding company which engages in property development and construction management activities primarily in Malaysia and Australia. The company constructs and develops residential and commercial properties and provides general management support services. It is also involved in property investment and property project managent, general trading, facilities management and food and beverage businesses. In addition, the company serves as a concessionaire for the design, construction, and completion of 10,000 units of teachers’ quarters to the Government of Malaysia. Encorp is based in Petaling Jaya, Malaysia.

KEY ON-GOING PROJECTS

Property Development: Encorp has five signature property development project which are strategically located at (i) Encorp Cahaya Alam, Shah Alam, (ii) Encorp Strand, Kota Damansara, (iii) Batu Feringghi, Penang, (iv) Nusajaya, Johor; and  (v) Perth, Australia   Construction Projects: Encorp Cahaya Alam, Shah Alam – Lotus, Encorp Marina Iskandar Malaysia, Kuala Lumpur Gateway Sub-stracture works (pile-cap and 6 stories of car park), Mansion Park Cyberjaya Housing, The Manhattan Residence Kuala Lumpur

Source: Kenanga