KUALA LUMPUR (July 7): Public Investment Bank Research (PublicInvest) has derived a fair value of 82 sen for soon-to-be-listed Haily Group Bhd, based on a 12 times PE multiple to its FY22F EPS of 6.8 sen. 

In an initial public offering (IPO) note today, the research firm said Haily’s “future prospect appears bright moving forward” as the group strives to expand into industrial building construction to address opportunities provided by economic developments in Johor.

Additionally, the company also plans to continue focusing on its core competency in residential building construction by expanding its business mainly from Johor Bahru and Kulai districts into other districts in Johor.

“We believe the PER of 12x is justifiable as it represents the industry average PER with the sample amongst Haily’s closest peers within the same business space and market capitalisation,” PublicInvest said.

PublicInvest’s fair value of 82 sen is a 20.6% premium to Haily’s IPO price of 68 sen per share.  

Haily’s IPO is expected to raise approximately RM20.4 million from the issuance of 30 million new shares.

Besides utilising 20.6% of the proceeds for purchase of new construction machinery and equipment as well as office hardware and software, 29.4% and 34.3% of the proceeds are allocated for general working capital and repayment of bank borrowings respectively, PublicInvest added.

“The group maintains its low gearing ratio levels i.e. 0.1x in FY2017 and FY2018 and 0.04x in FY2019. It had increased slightly to 0.15x in FY2020 however as borrowings increased in order to finance the ongoing projects though we reckon it was still manageable. That said, upon listing of the IPO, Haily’s gearing is expected to reduce from 0.15x to 0.03x as RM7 million of the proceeds raised will be used for bank borrowings.

“While the group is not implementing any dividend policy, it intends to distribute dividend of at least 30% of its profits attributable to the shareholders. We note that the group distributed RM10 million, RM5.3 million, RM6 million and RM2.5 million respectively from FY2017 to FY2020, which translates to a payout of 79.8%, 62.2%, 67.8% and 23.9%,” explained PublicInvest.

The research firm said Haily's growth will be dependent on expansion into the other districts in Johor, the purchase of new construction machinery and equipment, as well as enhancement of office hardware and software.

The group’s key drivers may include low interest rates and favourable lending policies; availability of loans to fund construction activities, and government initiatives such as transformation programmes and affordable housing schemes.

“Key downside risks, among others, include competition from other construction companies; exposure to the inherent risk in the construction industry; dependency on labour supply; dependency on major customers; dependency on its subcontractors' and consultants' works; and unanticipated increases in costs associated with its construction projects,” the research firm added.

Haily Group is slated to be listed on the ACE Market of Bursa Malaysia on July 21.