This article first appeared in The Edge Financial Daily on April 9, 2018

KUALA LUMPUR: Since listing on Bursa Malaysia’s Main Market on July 10 last year, Advancecon Holdings Bhd has been on a roll, with four job wins in a span of nine months.

The construction group, which specialises in the provision of earthworks and civil engineering services, had an outstanding order book of RM957.24 million as of March 22, which is expected to last the group until the end of next year.

However, the performance of its share price has not matched the excitement from the job wins. Though the price did increase slightly each time the group announced a job, it would quickly retreat subsequently.

Since listing, the highest price achieved was RM1.20, which was recorded on Nov 1. Thereafter, it had been on a seesaw, and closed at a record low of 61 sen last Friday — 3% lower than its initial public offering price of 63 sen — with a market capitalisation of RM245.27 million.

Advancecon group chief executive officer Datuk Phum Ang Kia opined that the market should be left to decide on the best valuation for the group.

“The movement in our share price is beyond our control as it is the market that decides,” he told The Edge Financial Daily. “On our part we will work hard to deliver and secure new projects. And we believe we will give [investors] confidence in our company.”

On what’s in store for the group, Phum who has over 40 years of experience in the construction industry said Advancecon intends to grow its order book to RM1 billion this year.

“We believe that 2018 will be a good year for us. We will continue to tender for jobs. Our tender book size is about RM1.5 billion, which is a good mixture of infrastructure and property projects,” he said.

He added that listing on the stock market has definitely helped Advancecon enhance its profile in the industry.

“Before listing, our order book was approximately RM572 million, and now it is close to RM1 billion. We have also managed to secure new clients, such as SKVE Holdings Sdn Bhd and Worldwide Property Management Sdn Bhd,” he said.

Last November, Advancecon subsidiary Advancecon Infra Sdn Bhd (AISB) won a RM75.5 million contract from SKVE to carry out earthworks and infrastructure works on the South Klang Valley Expressway .

The following month, Advancecon announced that Worldwide had appointed AISB as the main contractor for earthworks for the 439-acre (177.66ha) Alam Perdana development in Ijok, Kuala Selangor, for a contract sum of RM45.83 million.

Advancecon’s single-largest job win to date came in last month when it announced that AISB had bagged the contract for works on the West Coast Expressway (WCE) stretch from the Assam Jawa Interchange to the Tanjung Karang Interchange. The contract awarded by West Coast Expressway Sdn Bhd — a unit of WCE Holdings Bhd — is valued at RM370.1 million, and entails AISB undertaking earthworks, ground treatment works, drainage and box culverts, pavements and bridges.

This marks the second WCE job win for Advancecon. In December 2016, the group was awarded a RM239.8 million contract to undertake earthworks and civil works for the Banting Interchange to the South Klang Valley Expressway stretch of the highway.

The group has also made inroads into East Malaysia, when it clinched a RM105.23 million contract in December 2016 for the provision of earthworks of the Pan Borneo Highway project, from the Sungai Awik Bridge to the Bintangor Junction in Sarawak.

“We are looking to expand our presence in Sabah and Sarawak by securing more infrastructure jobs there,” said Phum.

The group also counts major property developers in the country as its clients, such as S P Setia Bhd, Eco World Development Group Bhd, Sime Darby Property Bhd and Tropicana Corp

Bhd.

Advancecon has reported a net profit of RM18.46 million and revenue of RM265.99 million for the financial year ended Dec 31, 2017 (FY17), resulting in a net profit margin of 7%.

“We intend to grow our revenue by 10% to 20% per year in line with our contracts in hand,” said Phum.

Based on its closing price of 61 sen last Friday, the group is valued at a historical price-earnings ratio of 13.28 times.

The group’s specialty in the provision of earthworks makes it a niche player in the construction industry, and unlike other players in the industry, the group’s operations are not so reliant on foreign workers.

“Foreign workers only make up 10% of our total workforce, and in fact our jobs are not so labour-intensive — we only need people to operate our machinery.

“We set aside about RM15 million to RM20 million per year just to buy new machinery,” said Phum.

It is also worth noting that the specialty in earthworks gives the group an advantage when it comes to one of the biggest woes commonly cited by construction players — payment collection. This is because the nature of earthwork jobs means that Advancecon would be the first to commence work for any construction project, and in that sense it would need to get paid first in order for any project to progress.

“[For] any development, be it townships or infrastructure projects, you need to prepare an earth platform before a building contractor can commence a job. If we are not paid, we can’t complete the job and subsequent contractors can’t come in to do their job. So that puts us in a unique position when it comes to payment collection,” said Phum.

As at FY17, Advancecon’s cash and cash equivalents, coupled with its short-term investments, stood at RM23.97 million, while its total borrowings amounted to RM108.2 million. Its net gearing ratio works out to 0.48 times.

The group has a dividend policy to distribute a minimum 20% of its net profit.