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Vivocom will likely record strong 1Q16 results

A construction worker is seen working on a construction site. Combined with the RM600 million in new contract wins announced year-to-date, Vivocom will be comfortable at RM2.6 billion new contract wins by mid-2016, analysts say. — Reuters photo

A construction worker is seen working on a construction site. Combined with the RM600 million in new contract wins announced year-to-date, Vivocom will be comfortable at RM2.6 billion new contract wins by mid-2016, analysts say. — Reuters photo

KUCHING: Vivocom International Holdings Bhd’s (Vivocom) first quarter of 2016 (1Q16) results are likely to be strong, analysts project.

According to the research arm of CIMB Investment Bank Bhd (CIMB Research), Vivocom’s share price has risen in the past few weeks (up 11 per cent). The research arm believed this could be due to several reasons. These include the expectation of a strong 1Q16 result as well as new contracts.

“We believe that Vivocom is likely to report strong 1Q16 results in mid-June 2016 that will beat our estimates,” CIMB Research said.

The research arm noted that in a recent newspaper report, executive director Choo Seng Choon guided for financial year 2016 (FY16) revenue of RM760 million, which was 33 per cent higher than its estimate.

“Assuming similar net profit margins, this implies FY16 net profit of RM60 million or RM15 million per quarter,” it said.

CIMB Research highlighted that Vivocom is finalising the award of RM1.5 billion worth of letter of intents (LOIs) over the next three months.

“In addition, we understand that another RM500 million in new building jobs in Ipoh is in the pipeline,” it said.

CIMB Research noted that combined with the RM600 million in new contract wins announced year-to-date, Vivocom will be comfortably at RM2.6 billion in new contract wins by mid-2016.

Vivocom will only require another RM400 million in wins for the second half of 2016 (2H16) to meet the research arm’s 2016 estimate, which could be surpassed if the Gemas-JB double-track is awarded by year-end.

On another note, CIMB Research observed that Vivocom is also in negotiations with other Chinese contractors in Malaysia for subcontract works.

“In addition, negotiated tenders with private sector developers, while not necessarily headline-grabbing, are lucrative contracts with high margins.

“Given that Vivocom’s orderbook is growing rapidly, it can afford to be more selective and take on only high-margin jobs,” the research arm said.

CIMB Research pointed out that Vivocom needs about 10 per cent working capital for every ringgit of the group’s outstanding order book, primarily to meet the five per cent performance bond and five per cent for preliminary work done.

“To that end, Vivocom intends to complete the balance 4.5 per cent of its 10 per cent placement by mid-2016.

“Overall, Vivocom is not keen on taking on too much debt and will retain a 70-30 equity-debt structure,” the research arm said.

As such, the research arm believed that a placement in 2017 could happen if job wins exceed its expectations.

Over the next three months, CIMB Research expected multiple re-rating catalysts to materialise.

“In addition to letter of awards for various contracts worth RM1.5 billion, the strong 1Q16 results should calm investors’ earlier concerns about Vivocom’s execution ability,” it said, adding that China Railway Construction Corp Ltd (CRCC) contract awards are likely to materialise in 2H16, which are Penang major roads and Gemas-JB double-track.

The research arm retained its earnings per share (EPS) forecasts, sum of parts (SOP)-based target price and ‘add’ rating.



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