INVESTMENT MERIT

We are excited with VIZIONE’s move in acquiring WSSB as it is part of management’s effort in turning the company around, which we believe is highly doable as it is backed by: (i) aggregate profit guarantee of RM82.6m for two years, (ii) WSSB’s long-standing track record in the construction industry, and (iii) its order-book prospects of RM2.6b. We are projecting FY18-19E net profits of RM31.0- 62.0m, respectively. NOT RATED with a Fair Value range of RM0.12-RM0.16.

Acquires construction business with profit guarantee. VIZIONE formerly known as ASUPREM have proposed to acquire 100% stake in Wira Syukur Sdn Bhd (WSSB) for a total consideration of RM280.0m. The purchase of WSSB entails a share issuance of up to 976.2m at RM0.11 amounting to RM107.4m while the remaining balance of RM172.6m will be satisfied via cash. Interestingly, the acquisition of WSSB also comes with an aggregate profit guarantee of RM82.5m over two years based on WSSB’s financial year-end which falls on December by its vendors i.e. Dato’ Ng Aun Hooi, Bee Jian Ming, and Goon Mong Yee.

Private placement exercise entails. VIZIONE also proposed to undertake a private placement exercise of up to 1.7b shares to fund the cash portion of the acquisition of WSSB and assuming the same placement price of RM0.11, VIZIONE would be able to raise up to RM185.6m. The balance funds post acquisition will be for working capital purposes and also expenses arise from the acquisition of WSSB.

WSSB, a high-rise player. WSSB is a contractor with a strong track record in affordable housings, schools, health clinics across Malaysia. In the past, they have completed projects in various states i.e. Penang, Melaka, Sabah, Selangor and Kelantan. Note that they have completed housing projects for notable developer like SUNWAY (e.g. Sunway Eastwood, Sunway South Quay).

Decent order-book size of c.RM1.0b, with more in the pipeline.

Based on its circular, WSSB have already commenced works on RM1.0b worth of projects that are mostly high-rise jobs. That aside, they also have another RM2.6b worth of works in the pipeline that is pending finalisation of details from the clients before they could commence work. Should we include this RM2.6b worth of potential jobs, WSSB would have an order-book size of RM3.6b that would easily provide them visibility of 2-3 years.

Profit guarantee. The vendors have provided a profit guarantee for WSSB of an aggregate PAT of no less than RM82.6m based on an indicative outstanding orderbook size of RM1.5b over two years i.e. CY17-18E. This shows management’s confidence on the execution of its on-going project as they would be required to top-up the differential sum if WSSB is unable to meet the guaranteed aggregate profit of RM82.6m.

Not rated. Based on its existing order-book size of RM1.0b coupled with an assumed replenishment of RM600.0m per annum from its orderbook prospect of RM2.6b with an aggregate profit guarantee of RM82.6m for two-years, we are projecting FY18-19E of RM31.0m and RM62.0m, respectively. By ascribing 9x PER to our FY19E earnings post acquisition of WSBB, we derive a market capitalisation of RM558.0m which would translate to a fair value range of RM0.12- RM0.16 based on the minimum and maximum scenario of the entire corporate exercise as detailed overleaf. While its business is similar to KIMLUN and KERJAYA in the high-rise scene, we believe that our ascribed PER of 9x or at the lower end in our small-mid cap contractor universe (9x-13x) as it is similar to KIMLUN with similar pre-tax margin range (6%-7%), market cap size while both balance sheet remains light . We also note that while earnings prospects of VIZIONE is better than KIMLUN, we would prefer to see a more consistent dividend payout or formal dividend policy, further margin improvements and steady earnings delivery track record in order to re-rate valuations further.

Source: Kenanga Research - 5 Sept 2017