Wall Street KLCI

SYCAL (9717) - Riding the construction boom

Wall Street KLCI
Publish date: Wed, 30 Jul 2014, 09:18 AM
Wall Street KLCI
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THIS BLOG IS RELATED TO OBSERVATIONS REGARDING STOCKS TRADED IN MALAYSIA. DISCLAIMER: THE COMPANY ANALYSIS THAT APPEAR IN THIS BLOG IS MERELY FACTS GATHERED FROM DIFFERENT SOURCES AND THE AUTHOR'S PERSONAL VIEW. IT IS NOT A BUY OR SELL RECOMMENDATION. THE AUTHOR DO NOT GUARANTEE THE ACCURACY OF THE FACTS BEING PRESENTED. PLEASE CONSULT YOUR INVESTMENT ADVISORS BEFORE ACTING ON ANY INFORMATION PROVIDED BY THE ANALYSIS ABOVE.
Following Message
3 KEY POINTS
 
  1. Potential 50% upside potential for share price.
  2. FY13 earnings surged 96% YoY.
  3. Trading at 34% below its book value of ~60 sen
Mainly involved in construction business. Sycal Ventures Berhad (SYCAL) is mainly involved in the construction business with specialization in civil and building construction works. Its construction projects are mainly concentrated in Taiping, Ipoh and the hotel project in Jalan Pantai Kuala Lumpur. Historically, SYCAL has delivered more than RM1.5b worth of projects for the government and private sector including low-rise and high-rise housing, infrastructure, landmark buildings, universities, hospitals and commercial developments. As of 26 May 2014, SYCAL order book is RM650m which means very good visibility of up to 3 years for this division. In FY13 (ending December), SYCAL construction division contributed RM12.2m Profit Before Tax (PBT) or 52% of the Group's total PBT of RM23.4m.

 

Property division is the 2ndbiggest earnings contributor. In FY13, SYCAL property division contributed RM8.5m PBT or 36% of the Group's total PBT. This division is backed by strong GDV of RM500m with property projects in Cheras (Kuala Lumpur), Sitiawan (Lumut and Segari), Taiping and Ipoh. Some of previous completed projects in Cheras include Town Villas and Vista Harmoni Condominium.


FY13 earnings surged 96% YoY to RM17.4m. Super good earnings growth was caused by construction division PBT which jumped 190% YoY to RM12.2m. This should be caused by overall improvement in construction sector in Malaysia which has grown 9.7% YoY according to Bank Negara. Property division also did well with its PBT improved 34% YoY to RM8.5m which we think is due to better property prices in KL and Perak. Accordingly, SYCAL EPS surged 76% to 5.44 sen.

 

Strong balance sheet with net gearing of only 1%. Usually, construction company has high net gearing exceeding 10%. This made SYCAL net gearing of only 1% seems extremely strong. This is based on its 1Q14 total cash of RM5.5m, short term loan RM1.2m, long term debt RM5.8m and equity of RM191.5m.


Trading below book value of 60.6 sen. It is surprising to see such a good Company is trading at RM0.40 or 34% below its Book Value of 60.6 sen. This could mean the stock is extremely undervalued as its earnings growth is strong.


50% UPSIDE! SYCAL theoritically worth 60 sen. By applying a low 10x PE to 6.0 sen EPS estimate in FY14, this stock is easily worth RM0.60. As mentioned previously, SYCAL FY13 EPS is 5.44 sen and assuming a conservative earnings growth of 10% in FY14 means its FY14 EPS should touch 6.0 sen. The 10x PE is for small cap construction stocks and this should be fair as it is already at about 15% discount to current Small Cap Index PE of 11.5x.


Buy 25,000 SYCAL into my paper portfolio B. Based on all reasons stated above, I will start a new RM10,000 portfolio (called Portfolio B) and invest in this stock. First transaction is buy SYCAL at 40.0sen (25,000 shares).
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