Highlights:

1. Having net cash of RM50.2M (including short term investment but excluding prepayment of 9M for performance bond) with ZERO borrowings. Market Cap at RM57.8M at current price of 35.5 sen, huge margin of safety. If include prepayment of bond, cash equivalent is 59M.
2. New big shareholder, Mr Ong Chee Koen bought more than 14.15% shares via off-market on 22 June 2018 at 57 sen. Total Direct Business Transaction share is 50,885,000 (31%) at 57 sen on the same day. NTA of Mmode is 46.8 sen (mostly backed by cash and some are PPE and receivables)
3. MMODE diversified into construction business & brought in a number of projects. Before May 2017, E&J Builders was setup and soon, new management has taken over Mmode. Mr Ong Chee koen has joined Mmode since 2017. He has more than 38 years of experience in construction industry.
4. The management has completed notable projects like Calvary Convention Centre in Bukit Jalil, Casa Green in Bukit Jalil and Octagon in Ipoh. Within a year, E&J has won 3 contracts from Titijaya.
5. Secured orderbook of RM360M (latest outstanding of orderbook is about 307M due to 53M already converted to revenue in past 2 qtr).
6. Expected completion date of H2O project of Ara Damansara is on 31 Dec 2018. So far good progress can be monitored from a snapshot of photo in mid of June 2018.
7. The estimated EPS for coming 12 months is about 4.2 sen. The fair value based on PE10x is 42 sen. Bear in mind Mmode is holding 50.2M cash (cash per share is 31sen excluding performance bond prepayment) with zero borrowing. With consideration of 50% of its cash, there are high margin of safety and the fair value can reach 50sen (backed by 31 sen cash per share with high earning visibility from H2O project)
8. The risk lies in delay in the completion of projects and rising labour cost.

Performance bond, also known as a contract bond, is a surety bond issued by bank (or paid by contractor using cash) to guarantee satisfactory completion of a project by a contractor. It is a refundable deposit and normally can be refunded after defect liability period (DLP) which is normally 12-24 months. Mmode has paid the H2O project performance bond using their cash (save interest cost) and it is parked under other receivables.

The Enterprise value (EV) of Mmode is extremely low due to its high cash level and EV / EBITDA also very low (indicate high margin of safety and what I like Mmode is not due to their CASH but more to its earning growth from construction considering its small market capital and experiences of the new big sharehoder, Mr Ong Chee keon. 

The above photo shows H2O project progress as per mid of June 2018 (exterior seem completed, doing interior touch up). The progress of H2O indicates their future revenue and profit in 2018. 

At 28/02/2018

Source: Q3’18 report

With most of the earning converted to cash, total cash include prepayment of bond is RM59.4M, converted 36.4 sen per share (with Zero borrowing)

At 31/08/2017 (6 months ago, started H2O construction project in May 2017)

Source: Q2’18 report

At 31/03/2017 (12 months ago) (not yet involve in H2O, other receivable amount is 0.57M only)

Source: Q1’18 report

Prospect and Fair value for 2018 (remaining 9 months)

Let us have a look on the profit forecast (remaining 9 months of 2018) based on its construction orderbook and mobile contents segments as below:

*= estimated from their qtr reports.

Estimated Total net profit from construction = RM2.58M (9 months)

Estimated Total net profit from Mobile contents = RM2.8M (9 months)

Estimated Total net profit from both construction & Mobile contents = RM5.38M (9 month only)

For 12 months (including Q3 of FY2018 ended 28 Feb 2018) = 5.38M + 1.517M = 6.9M

RM6.9M translated to EPS 4.2 sen.  With forward 9-month PEx of 10x, the fair value based on EPS of 4.2 of Mmode is 42 sen. Bear in mind Mmode is a holding 50.2M cash (cash per share is 31 sen excluding performance bond prepayment) with zero borrowing.

With consideration of only 50% of its cash, there are high margin of safety and the fair value can reach 50sen.

This is assuming that no contribution from their new awarded Sabah RM260M project in 2018.

For FY2019-2020

Risk

1. Delay in the completion of the H2O project
2. Rising labour cost (min wages increment in the future)
3. Loss of single largest Axiata customer.  

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Disclaimer:

This writing is based on my own assumptions and estimations. It is strictly for sharing purpose, not a buy or sell call of the company.