KUALA LUMPUR (March 28): MIDF Research has valued Selangor Dredging Bhd (SDB) at RM1.64 and said the recurring income from hotel management of Hotel Maya could provide a breather should the property mart is weak.

In a note March 25, the research added that having said that, improvement in ROE indicates that the earnings are driven efficiently by sales despite cyclical blips.

“Thus, reduction of earnings from marginal erosion by incurring higher construction and development cost of eco-friendly residences is anecdotal for SDB,” it said.

MIDF Research said SDB’s earnings projection could be forecasted in a positive note as a surge in the take-up rate for units in ‘Village’ in Pasir Panjang is expected.

It said an inflow of non-ringgit revenue stemming from Village Pasir Panjang property launch in Singapore is factored in our assessment.

“Assuming a conservative net margin of circa 11% with a contribution of RM377.2 million (50% stake), Pasir Panjang project can potentially contribute RM41.5 million to SDB’s bottom line.

MIDF Research said that from the net tangible asset (NTA) perspective the current value for SDB is RM1.80 per share, hence the share price has 51% upside to its value.

“Furthermore, its balance sheet can withstand capital intensity for procuring higher quality building materials and designing sustainable green projects such as ‘By the Sea’ and ‘Dedaun’,” it said.

The research house said that for this volatile market condition, companies with strong business franchise, creative construction and development forte coupled with entrepreneurial acumen should be taken a hard-nosed look.

“For valuation, SDB is fairly valued with an estimate of RM1.64 by rolling over FY17 EPS with on the back of prospective PER of 8x. “Relatively, SDB’s current PER ratio of 5 is undemanding against its peers median of PER of 17.6x,” it said.