SARAWAK Consolidated Industries Bhd (SCIB) has received a favourable non-rated fair value of 90 sen from BIMB Securities Research by virtue of it being a prominent construction company and also the largest precast concrete-cum-industrialised building systems (IBS) manufacturer in East Malaysia.
With integrated factories in Sarawak, the research house noted that SCIB has evolved into a construction company since 2019/20 while having secured sizeable projects in Malaysia as well as overseas, particularly in the Middle East.
As of end-July 2021, SICB possess a sizeable order book value of RM2.4 bil – the latest being the Terengganu road maintenance project worth RM138.5 mil announced on July 26 (its maiden project in Peninsular Malaysia).
“Despite the COVID-19 pandemic, SCIB remains optimistic on its business prospects,” BIMB Securities Research pointed out.
“(But) the sharp sell down in SCIB is unwarranted … The current share price is not reflective of its new business and the turn-around seen in its earnings as well as exponential growth in order book seen during the last financial year.”
The research house is of the view that the near-term catalyst to SCIB’s share price is the re-opening of the economy which is expected to take place sooner rather than later as Malaysia’s vaccine roll-outs continue to gather momentum.
Despite SCIB and Serba Dinamik Holdings Bhd having a common major shareholder in Datuk Dr Mohd Abdul Karim Abdullah who owns 38.3% in SCIB, the company is run independently with a separate management team, according to BIMB Securities Research.
“The projects are stand-alone with total order book at RM2.4 bil of which there are two Serba Dinamik-related projects worth approximately RM500 mil,” observed the research house. “These two projects have yet to begin construction.”
Nevertheless, one of SCIB’s key risks is its rising trade receivable of RM339.5 mil or debtor days of 240 in CY2020 vs 104 days in CY2019, according to BIMB Securities Research.
“However, the management has indicated its commitment in resolving this issue and has been engaging with clients regularly. This key risk would start to reduce when countries gradually exit from the pandemic,” opined BIMB Securities Research.
“Another risk is a prolonged COVID-19 scenario which may jeopardise the progress of projects currently on-going. This situation could also hamper the construction sector as whole.”
On the other hand, the research house reckoned that the risk to order book due to its connection with Serba Dinamik (via common shareholding) is quite minimal, hence would not have a significant impact on SCIB’s operation.
“Its order book reduction risk is RM500 mil as discussed earlier should the two Serba Dinamik-related projects failed to take off. Once this risk diminishes, investors’ sentiment on SCIB would improve, leading to potential recovery in share price,” added BIMB Securities Research.
At 9.11am, SCIB was up 1 sen or 0.79% to 64 sen with 119,000 shares traded, thus valuing the company at RM314 mil. – Aug 6, 2021
