WIDAD GROUP BERHAD
KLSE (MYR): WIDAD (0162)
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CS Tan
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
commonsense
492 posts
Posted by commonsense > 2019-04-09 16:33 | Report Abuse
Widad is a company that specialises in construction and integrated facilities management (“IFM”) services. Even though constructions accounts for more than 65% of the group’s revenue, the main contributor to the group’s profit is actually the IFM business (around 60% of operational profit). The 2 biggest contracts for their IFM division are the Istana Negara and Johor Baru Sentral contracts of which the latter had actually expire last month. Istana Negara contract is up to 2022. With the construction industry still facing intense challenges, IFM division will provide investors with consistent profit at least until the construction industry rebound back (government start to focus back on infrastructure projects).
That being said, Widad is actually trading at a lofty valuation of 31x PE. Even if you project a profit of RM25mil in 2019, at the current share price, the company would already be valued at 25x forward PE.
Given the government cost savings initiatives/ drives, I don’t think the lucrative contracts that Widad won during the previous administration will repeat itself under PH government. Widad need to show that they are able to win similar contracts from the private sectors for it to be valued at a PE of above 20x (more recurring and will not face the risk of any government policy changes in the future).
If you are looking to hedge your portfolio outside of Widad (due to its relatively high valuation), I would recommend you to look at MBMR. (https://klse.i3investor.com/servlets/stk/pt/5983.jsp)
MBMR is a direct proxy to Perodua via its 22.6% interest in the company. Valuation is cheap at only 6.7x PE based on FY18 profit of RM166mil. PB is low at only 0.7x BV.
FY19 should deliver another profit growth year to the company. Profit growth will again be driven by the performance of Perodua (via MBMR 22.6% holdings in Perodua) from the still strong sales of new Myvi, sales of SUV Aruz and the introduction of the newly revamp Alza sometime in the 2H19. Aruz which commands a higher margin compared to other models, will help improve the total profit margin of Perodua (which will flow to MBMR’s bottom line as well).
MBMR is expected to achieve a profit of RM200mil in 2019. At the current share price, the company is being valued at only 5.6x which is a lot lower than the industry average of 15x PE. As an example, UMW (another company with exposure to Perodua) is currently trading at a PE multiple of almost 20x.
Good luck.