HB Global Ltd (HBG) is primarily dealing with Foods Processing business which specialise in the R&D, and manufacturing of a variety Ready-To-Serve foods (RTS). In April 2021, the company acquired a 60% stake in Forward Resources and Construction SB (FRC) for RM66m. Following the acquisition, HBG has diversified into the construction and engineering solution services. FRC has a remaining orderbook amounting to RM1.6- 1.7bn, which provide earnings visibility for the next 3-4 years. The new sources of income will greatly improve HBG’s earnings for FY21 and beyond. BUY with a target price of RM0.76 based on 15x FY22 FD EPS.

In April 2021, HBG received shareholders' approval to acquire a 60% stake in FRC for RM66m. At the same time, shareholders also approved the company's diversification to include the construction and engineering solution services. Management noted the diversification will provide strong and stable alternative income stream to HBG. FRC comes with a profit guarantee of RM20m in aggregate for FY21 and FY22, excluding exceptional gains.

HBG’s existing business of Food & Supply Chain Solutions does not provide stable income, hence, the acquisition of FRC will generate recurring income and positive cashflow for the company.

The businesses of FRC includes the supply, delivery, installation, testing, commission, operation, maintenance, and deployment of the 5G infrastructure and solutions across Malaysia. FRC provides the services of laying fibre optic cables, supply, delivery, installation and commissioning of related network equipment, as well as provision of related maintenance services at selected sites of the project owner.

At present, FRC has a remaining project orderbook amounting to RM1.6-1.7bn which provide earnings visibility for the next 3-4 years. The existing clients of FRC includes Digi, Maxis and Asiana Citarasa SB. On top of that, the company is planning to tender more projects from other telecommunications provider in the future.

Based on management’s guidance, these projects will generate gross profit margins of between 30% and 40%. We project HBG’s revenue to grow by 134% and 229% to RM139.8m and RM459.8m for FY21- FY22 respectively. We forecast the company to make net earnings of RM10.6m and RM39.2m for FY21-22 and arrived at a target price of RM0.76 based on 15x FY22 FD EPS. Our BUY recommendation is premised on: (i) strong remaining orderbook of RM1.6bn-RM1.7bn which provide clear earnings visibility; and (ii) emergence of 5G which will boost the telco sector.

Source: Rakuten Research - 28 Jul 2021