Vertice Bhd
(Sept 4, 89 sen)
Recommend buy with a target price (TP) of RM1.08: Vertice Bhd is set to return to profitability following the streamlining of its business operations to focus on construction as we expect more positive job flows from the group moving forward. The TP is based on 12 times price-earnings ratio for financial year 2020 (FY20) as per the Bursa Construction Index.

Vertice’s investment merits remain attractive with its alliance with Consortium Zenith Construction Sdn Bhd (CZC), the main contractor of the Penang mega infrastructure project. To recap, the RM6.3 billion project comprises four construction work packages, including three major roads and an undersea tunnel project. Vertice, which owns 13.21% of CZC, has secured package 2 of the mega project for the construction of a by-pass from Bandar Ayer Hitam to Lebuhraya Tun Dr Lim Chong Eu. Work on package, with a contract sum of RM815 million, is expected to kick-start by end-October 2019.

With the flagship project, the group’s total outstanding order book now stands at about RM1 billion. With Vertice’s investment in CZC, we believe the group is on a stronger footing as it is one of the few potential players to be awarded the remaining work packages of the Penang mega infrastructure project.

As a part of its business restructuring, Vertice is expected to record better financial numbers following the disposal of its 60% equity interest in non-performing fashion retail subsidiary Kumpulan Voir. Additionally, the group has also undertaken a major private placement exercise, raising fresh capital of RM40.08 million, providing stronger balance sheet to fund the growing construction division. This will transform Vertice into a serious construction player.

Vertice’s balance sheet remains healthy with near zero gearing level and a net cash position of RM4.9 million. With its management’s effort to streamline the company’s business operations, we expect its earnings catalyst to be driven by its construction projects on the back of stronger order book moving forward from Penang’s infrastructure spending. — Rakuten Research, Sept 3