RHB Investment Research Reports

Ecoscience International - Expanding Footprint in Indonesia

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Publish date: Thu, 30 Jun 2022, 12:03 PM
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  • MYR0.31 FV, based on 10x FY23F P/E. At a MYR0.30/share IPO price, Ecoscience International will raise MYR24.7m from its public issue of 82.2m shares. Bulk of the proceeds will be used to finance working capital expenditure and repay its borrowings, while MYR5m is allocated to increase its business presence in Indonesia. Its future earnings (3-year CAGR of 11.6%) will be driven by greater contributions from its equipment fabrication as well as supply of equipment and materials segments, on top of improving margins.
  • Orderbook and outlook. EIB’s outstanding orderbook consists of MYR107m in existing contracts, 65.5% of which is expected to be recognised in FY22F. On top of this, the group is currently tendering for 17 projects (four overseas and 13 local), with an estimated total value of MYR781m. With its facility in Pasir Gudang currently at a 100% utilisation rate (vs 80% average in FY21), we are positive on the sustained topline growth for the group. However, we remain cognisant of the potential need for additional investment to keep up with demand and contract wins in the future.
  • Expansion strategies. The group has earmarked MYR6m from its public issue proceeds to be used for business expansion purposes. From this, MYR5m will be allocated to set up a new fabrication facility and office in Indonesia, where it is seeing increasing demand for its services (27% of FY21 revenue came from Indonesia, vs 12% in FY20). Elsewhere, the remaining MYR1m will be used to purchase 12 new non-chemical water treatment equipment to be leased to customers as part of its environmental and energy efficiency business.
  • Earnings estimates. We forecast a FY21-FY24 earnings CAGR of 11.6%, premised on topline growth and improving margin. We believe topline growth will be driven by the equipment fabrication as well as supply of equipment and material segments, while a moderation in steel prices should alleviate some pressure on its costs. Management has pledged a 20% dividend payout ratio, which translates to a FY22F dividend yield of 1.2% based on IPO price.
  • Valuation. Pegged to a P/E multiple of 10x based on FY23F earnings, we arrive at a FV of MYR0.31. The target multiple of 10x is in line with the 11x 2-year historical average P/E of its local peers (Figure 5), with a small discount ascribed to account for its listing on the ACE Market.
  • Key risks: Dependence on major customers, a slowdown in contract wins, and adverse movements in regulations and FX rates.

Source: RHB Securities Research - 30 Jun 2022

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