GFM Services Bhd (“GFM”) current share price weakness renders it an attractive value proposition following the completion of KP Mukah acquisition in November 2018. This concession runs until year 2035 with full earnings contribution this financial year. Reiterate BUY as we ascribed a target price of RM0.50 based on 13x PER FY20 average of closest related peers.

GFM which is an integrated facilities management solutions company with over 20 years of experience. The company has a diversified client base with over 18 on-going contracts worth over RM1.35bn.

GFM has won a RM69m contract back in February 2019 from Bank Negara Malaysia to provide comprehensive facility management services for a four-year period until 2022. Management has targeted RM100m in new contract replenishment for 2019 and renewal of existing contracts to be >90%. Outstanding orderbook of RM1.35bn will provide earnings visibility for a longer term as the KP Mukah concession will last until year 2035.

GFM 1Q19 results saw net profit almost doubled to record high of RM5.53m compared to RM2.83m in 1Q18 and reported it highest quarterly revenue of RM42.4m compared to RM31.9 in 1Q18. The improved performance is predominantly due to consolidation of the results from their acquisition of KP Mukah.

GFM is also embracing IoT in their business incorporating sensor technology for real time monitoring to optimise operational efficiencies and energy consumption mimicking smart buildings concept.

GFM balance sheet looks stretched with net gearing of 3.2x due to RM165m sukuk raised for the funding of KP Mukah acquisition. However, the acquisition is earnings accretive and lucrative with higher margins where EPS is seen to jump by 83% in FY19 and 15% in FY20. Notwithstanding its gearing, GFM has maintained a 40% dividend policy of core profit which translate to expected dividend yield of 4.8% in FY20.

Source: Rakuten Research - 14 Aug 2019