Southern Score Builders Berhad (“SSBB”), formerly known as G Neptune Berhad which had on 9 November completed its regularisation plan via the acquisition of Southern Score Sdn Bhd for a consideration of RM252m by issuing 1.68bn new shares. The acquisition comes with a cumulative net profit guarantee of RM80.0 million over the three-year period from 2022 to 2024. Our Target Price of RM0.23 is based PE of 18x which is its new shares listing PE and premium to construction sector average PE due to its unique business model.
Unlike other traditional listed construction players predominantly doing residential and infrastructure construction work, SSBB’s business model principally involves in the provision of construction management services mainly for high-rise residential buildings. Being a turnkey contractor and main contractor, SSBB managed to clock in higher gross margin of 17.14% compared to its peers due to its low capital requirement via its construction project management business model.
Led by an experienced and technically strong management team of only 38 staff, SSSB aims for productivity and efficiency optimisation of its construction projects. It adopts industrialised building system (“IBS”) in most of its development and construction projects which is aimed at increasing productivity and improving quality of its projects. Besides that, by leveraging on its asset-light and flexible delivery model, SSSB is able to offer a standardised and cost-efficient building process which enables scalability and flexibility with lower exposure to cyclicality and house prices.
SSBB had on 10 November being awarded a turnkey contract for a value of RM173m thus pushing its aggregate orderbook to RM703m. Whilst SSBB does not have any tenderbook due to its niche business, the current orderbook provides earnings visibility up to year 2025.
Of the RM108.6m placement proceeds raised, SSBB intends to inject RM21.8m into TCS SS Precast Construction Sdn Bhd (“TSPC”), a 35% owned precast plant. This marks its new venture jointly with TCS Group Holdings Bhd into Industrialised Building Systems which the plant is expected to be completed within 18 months.
SSSB recorded net profit of RM6.51m, RM19.2m and RM35.18m in the financial years ended 31 December 2019, 2020 and 2021 respectively, and realised net profit margin of 9.7%, 12.9% and 12.3% in the past 3 years. In view of the steady CAGR growth of 73.2%, we have BUY recommendation, premised on (i) strong earnings visibility; (ii) low capex; and (iii) unique business model.
Source: Rakuten Research - 17 Nov 2022
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