KUALA LUMPUR: CIMB Investment Bank Bhd has retained its 'add' recommendation on Vivocom International Holdings Bhd as the company is likely to secure RM3 billion worth of contracts this year.
"The biggest surprise was the potential new order wins of RM1.5 billion in the next six months. As combined with RM600 million in new contract wins announced so far, and assuming it secures RM800 million to RM1.6 billion from Gemas-JB double tracking project, our forecast of RM3 billion worth of contract wins in 2016 should be met or even surpassed," said analyst Marcus Chan in the research report.
Chan added that Vivocom intends to complete the balance 5.5 per cent private placement by mid of 2016.
"Vivocom explained that it needs about 10 per cent working capital for every ringgit of its 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 5.5 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," Chan said.
The research house maintained its target price of 67 sen on Vivocom, which represents an upside of more than doubled from the closing price of 26.5 sen yesterday.
Chan said that Vivacom emphasised that strong margin are driven by a negotiated-tender business model with two main focus segments — as a subcontractor to China Railway Construction Corp (CRCC) and as a main contractor to non-CRCC related jobs.
Vivocom is an ACE Market-listed builder of telecommunication towers and other related civil works for tower sites, primarily in Sabah and Sarawak. It has applied to be upgraded to the Main Board of Bursa Malaysia, as the company evolution from a telco tower building business to a construction company.
"On its transfer to the Main Board, its management said that this is likely to take place in second half of 2017 as it requires a full year of construction profit to meet Bursa's requirements," said Chan.