INVESTMENT HIGHLIGHTS

• Encouraging flurry of news

• Tapping directly into the OBOR network

• Positive impact to VIHB’s construction expertise

• Nonetheless, we maintain our BUY call with a TP of RM0.395 per share

Encouraging flurry of news. VIHB’s major shareholders Golden Oasis Sdn. Bhd and Ang Li Hann reportedly has inked an indicative term sheet agreement to sell their stakes to CNQC International Holdings Ltd. (CNQC) totalling to 970.27m shares - amounting to 29.15% of its total shareholding. We believe that CNQC will finance the purchase of the VIHB’s shares via share swap. The news comes as a pleasant surprise as CNQC is now roped in to support VIHB’s growth in the construction segment.

Tapping directly into the OBOR network. CNQC Holdings Ltd. is listed in the Hong Kong Stock exchange with a market capitalisation of RM2.2bn (13.10.17). CNQC was established in in 1993 as a specialist sub-structure contractor in Hong Kong. The company is a part of Qinjiang Group’s network in Mainland China established in 1952 with strong project accomplishments such as Qingdao Olympic Sailing Centre and Qingdao Liuting International Airport. Currently, CNQC’s network is extensive covering real estate development and construction across Singapore, Indonesia, Hong Kong, Macau, Indonesia and Vietnam. The company’s project in Singapore covers almost 600,000 sq. m. of saleable floor area. Since last March, CNQC has delivered 32,000 residential units in Singapore. Amongst its notable completed projects in Singapore are The Minton in Hougang, HDB Punggol Spring in Punggol, Bellewoods in Woodlands and Ecopolitan in Punggol.

Positive impact to VIHB’s construction expertise. We view the news as a positive influence on VIHB to expand its capacity and capabilities. CNQC is expected to compliment VIHB construction team in areas such as sub-structure, water infrastructure construction, real estate financing and residential development. All in, with the crosspollination of expertise, we estimate that construction margin will improve by +1.2% in FYE18/FYE19 due to the slated expansion of the project team to undertake higher volume of construction activities. Furthermore, CNQC’s track record will strengthen VIHB’s expertise to bid for higher-scaled project such as the East Coast Railway Link.

Recommendation. Altogether, we maintain our BUY call with an adjusted TP of RM0.395 per share based on discounted cash flow (DCF) with WACC of 7.4%.

Source: MIDF Research - 16 Oct 2017