Top 7 Takeaways from AGESON BERHAD (KLSE: 7145)

Greeting investors, I happened to stumble across AGES after noticing some interesting discussion about the company and would love to share a piece of my opinion about the company. I had identified top 10 takeaways from the company annual reports that we should all take note of.

Key Business Model. AGES is principally involved in the provision of construction services, property development and sand exportation services. Based on financial year 2020, construction takes up to 82% of revenue and the remaining was contributed by property development. As for financial year 2018, the revenue contributed resulted in 77% from construction 20% from property development and 3% from trading and other activities.

Change of Key Management. In June 2019, Datuk Baharon Bin Talib, Dato’ Seri Liew Kok Leong, Dato’ Sri Chin Kok Foong had joined the board. There are certainly some rumours about the previous management, but let’s focus on the forward part. We had seen a gradual turnaround in profit after the new board members joined the company, and this is certainly a positive note for investors.

High Margin Construction Activities. One thing I had noticed about AGES is the high margin they enjoy over their business. For instance, AGES net profit margin for the latest 4 quarters are 15.70%, 12.77%, 27.71% and 23.60%, which was higher than the general construction sector that enjoys 6% ~ 8% margin and in line with property development segment of 15% ~ 20%. However, the construction portion of the company is bigger, hence we can conclude that the construction activities actually resulted in higher margin business.

Decent Cash Flow. In financial year 2020, the company racked in RM33.08 million in operating activities as compared to a negative RM3.25 million in financial year 2019. I believe no company is perfect, as such AGES might see some impact on operating cash flow for financial year 2021 due to the Movement Control Order 3.0 in order to curb the Delta variant virus. However, with continuous conversion of ICPS, the company should be able to weather through the upcoming quarters just fine.

Potential Dilution of Per Share. In exchange for cash flow, AGES had issued 4,610,754,392 ICPS in 2020 February. There are two ways of conversion which is via surrendering 13 ICPS to 1 new ordinary share or a minimum of 1 ICPS surrendered an additional aggregate value sum up to 13.0 cents. There had been aggressive conversion of ICPS to mother share, but bursa Malaysia did not disclose the conversion method, hence it was hard to gauge the actual maximum diluted EPS for the company.

Recovery of Economy. With the vaccination count hitting 80% by end of October, most construction and property development activities would expect to recover. This is likely to benefit all construction and property development related companies including AGES. Also, the cash flow collection for the industry is expected to be smoother.

Low PE Ratio. The LTM EPS for the company is 3.16, with AGES current price trading in circa 9.5 cents ~ 10.0 cents, the PER stay around 3.86 times ~ 4.00 times. Comparing with the overall construction sector with approximately 12 times ~ 15 times due to reduced earnings and resulted in higher PER, AGES seems pretty cheap at the moment.

Disclaimer: I do not hold any AGES shares at the moment and this article should not be served as a recommended buy or sell note.