KUALA LUMPUR: Haily Group Bhd's strong financial position, which includes proceeds from the initial public offering (IPO), enables the company to take on additional large-scale building construction projects with no limit on contract value.
Mercury Securities Sdn Bhd, in a recent note, said Haily, registered as a Grade G7 contractor with Construction Industry Development Board (CIDB), has a net cash position of RM40.0 million as of financial year (FY) 2020.
Haily's remaining order book RM249.58 million consists mainly of residential projects in Johor Bahru and Iskandar Malaysia.
Mercury Securities noted the company might start to see more opportunities to replenish its order book once Covid-19 restrictions in Johor start to ease.
Further, Haily plans to use its reputation and experience in Johor to help it expand into other districts within the state.
The company also plans to expand into industrial building construction in Johor, which could see an uptick once the economy reopens and the Iskandar Malaysia economic corridor continues to develop, the research firm said.
Mercury Securities also noted that Haily has less than a 1 per cent market share of the building construction industry in Malaysia.
According to Bank Negara Malaysia's forecast, the construction sector will expand by 13.4 per cent in 2021.
However, the forecast was made before the Movement Control Order (MCO 3.0). Hence the construction sector will likely grow at a slower rate, the firm noted.
"We have a target price of RM0.74 for Haily's stock based on forwarding cash-adjusted price-to-earnings (PE) ratio of 8.5x and FY21 earnings per share (EPS) of 6.0 sen, representing a potential return of 8.8 per cent over the IPO price," Mercury Securities said.
On risk factors, Mercury Securities said Haily might not secure enough new projects to replenish its order book and sustain revenue at current levels.
"Shortages and increase in prices of construction materials may negatively impact Haily's performance.
"The current lockdown may have a significant impact on Haily's performance," Mercury Securities said.