This article first appeared in The Edge Malaysia Weekly on October 9, 2017 - October 15, 2017

VIZIONE Holdings Bhd is expected to announce its first major contract win following the completion of a reverse takeover exercise last month.

According to sources familiar with the matter, the company has secured a construction job worth about RM400 million. It is understood that the work is related to building affordable housing in Kuala Lumpur.

This will boost the group’s current order book of RM3 billion by 13.3%.

When contacted, managing director Ng Aun Hooi declined to comment on projects that have not been announced.

However, he says the company currently has a tender book of about RM2 billion.

For perspective, Vizione has a market capitalisation of RM371.5 million, based on its closing price of 14.5 sen last Friday.

The company is valued at about seven times forward earnings (FY2019), taking into account the RM40 million profit guarantee — for calendar year 2018 — that came with the injection of Wira Syukur (M) Sdn Bhd (WSSB) as part of the RM280 million RTO exercise.

Vizione was formerly known as Astral Supreme Bhd.

While WSSB may not be a familiar name to most investors, it is an established name in construction circles — particularly when it comes to building affordable houses.

“I’ve been running WSSB for over 21 years with my partner, Bee Jian Ming. In fact, we had worked together even before WSSB. We go back almost 30 years,” Ng says, when asked about WSSB’s history.

WSSB has completed about RM3.5 billion worth of jobs over the past five years — a testament to its track record, he remarks.

“We are a very hands-on contractor. We don’t outsource or subcontract. The only thing we subcontract is labour. So, our

clients have great confidence in our ability to deliver.”

Compared with other construction companies, some might say that Vizione’s tender book is relatively small. Ng explains that the group is very picky when it comes to choosing who it works for.

“We are choosy. When we are selecting jobs, the most important thing for us is to ensure that we deal with good paymasters. We want to know that they have sufficient cash flow to pay us. Not all affordable housing projects are the same,” he says.

Vizione plans to focus on affordable housing projects in the Klang Valley, which are easier for developers to sell. This is also to ensure that the company has a higher chance of getting paid for its work.

“What is the point of doing a project with 15% to 18% [gross] margins if you have trouble collecting payment? Both [the contractor and the developer] will get stuck,” Ng stresses.

“For our affordable housing work, I am confident that we can command gross margins in the low teens at the minimum.”

That said, he reveals that the group is exploring infrastructure projects that will command better margins.

It is worth noting that affordable housing makes up 35% of Vizione’s order book, and that about one-third comes from mixed-use developments with both residential and commercial components.

Given the soft property market, there is a risk that mixed-use developments will underperform sales targets. This can affect payments to contractors. Thus, savvy investors often price contractors of such projects, especially high-rise projects, at a discount.

In contrast, developers of affordable housing projects are seen as better paymasters due to the support from various government and state housing programmes, although the margins are lower.

Investors should be aware that Vizione has no plans to pay a dividend in the near future. Ng says the company will only look to pay dividends in 2019 and beyond, preferring to use its RM80 million in cash as working capital for its growing order book.

The group has a net gearing of only 6%.

It is also worth noting that WSSB’s profit contributions will not be captured in the upcoming quarterly financial results for the second quarter ended Aug 31, which is due to be announced by the end of this month.(Vizione’s financial year ends on May 31.)

Instead, the earnings will only be reflected in the subsequent quarter ended Nov 30. Recall that WSSB gave a profit guarantee of RM20 million for the calendar year 2017.

Given that the company has no intention to pay dividends in the near term, it will be interesting to consider the warrants. Vizione WC has the most time until expiry — five years. With a strike price of 10 sen and a one-for-one conversion ratio, the warrant’s closing price of 10 sen last week values it at a 33.33% premium.

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