Vivocom paves way to partnership with China contractor

by **Cals** Fri 15 Jul 2016, 00:41

Vivocom paves way to partnership with China contractor

By CIMB Research / The Edge Financial Daily | July 14, 2016 : 10:51 AM MYT

[You must be registered and logged in to see this image.]
[You must be registered and logged in to see this image.]

Previous
Next

[size]

This article first appeared in The Edge Financial Daily, on July 14, 2016.

Vivocom Intl Holdings Bhd
July 13 (27 sen)
Maintain add with an unchanged target price (TP) of 78 sen: Vivocom Intl Holdings Bhd has proposed a 1:4 bonus issue, which will boost its issued shares from 2.6 billion shares to 3.2 billion shares. The company expects to complete the bonus issue in about two months, after getting shareholder approval. The last bonus issue was 1:3 on Oct 15, just nine months ago. The current bonus proposal did not come as a surprise to us as management had already hinted at this in its first quarter of financial year 2016 (1QFY16) results.
While bonus issues typically boost retail investor interest in a stock that suffers from a lack of trading liquidity, Vivocom does not have this problem. At the existing share base of 2.6 billion shares and a 57% free float, it is frequently in the top 10 in terms of volume on Bursa Malaysia.
Feedback from speaking to retail, high-net-worth and institutional clients revealed that investors’ immediate focus will be on the uncertainty surrounding chief executive officer Datuk Seri Dr Yeoh Seong Mok’s position in Vivocom. We believe that this should be made clear to investors to lift the overhang on near-term sentiment on the stock as there has been a great deal of speculation on the reasons for his potential early retirement.
Vivocom’s RM900 million in new contract wins this year has been from non-China Railway Construction Corp (CRCC) clients, which is testimony that it is not just reliant on CRCC for job wins. It also announced that it is finalising a RM600 million contract in Perak. Of its RM4 billion order pipeline, only about 30% are CRCC contracts (approximately RM1.1 billion — Gemas-Johor Baru electrified double-tracking rail project and Penang major roads). The recent tie-up with China Nuclear Engineering paves the way to an additional strategic partnership with a mega China contractor.
Vivocom’s share price has recovered from the technical support of 22.5 sen. Our TP is sum-of-parts-based and remains unchanged, with the construction business valued at a 10.5 times FY17 price-earnings ratio (PER), based on a 30% discount to the average sector PER of 15 times, comparable to other pure contractors of this size. Risks to our TP are project delays and execution. A potential rerating catalyst is strong 2QFY16 results. — CIMB Research, July 13
[/size]