KUALA LUMPUR, Malaysia (July 7): Based on a 12 times PE multiple to its FY22F EPS of 6.8 sen, Public Investment Bank Research (PublicInvest) has calculated a fair value of 82 sen for the soon-to-be-listed Haily Group Bhd. The research firm stated Haily’s “future potential is good moving forward” as the company seeks to grow into industrial building construction to capitalize on opportunities created by economic improvements in Johor, according to an IPO note released today.
Furthermore, the company intends to continue focusing on its core strength in residential building construction by extending its business primarily in Johor Bahru and Kulai districts into other Johor districts.
“We feel the PER of 12x is justified because it represents the industry average PER among Haily’s closest rivals in the same business category and market capitalization,” PublicInvest added.
The fair value of PublicInvest is 82 sen, which is a 20.6 percent premium to Haily’s IPO price of 68 sen per share.
The issuing of 30 million additional shares in Haily’s IPO is projected to raise roughly RM20.4 million.
Apart from using 20.6 percent of the revenues to buy new construction gear and equipment, as well as office hardware and software, PublicInvest said that 29.4 percent and 34.3 percent of the proceeds will be used for general operating capital and repayment of bank loans, respectively.
“The group’s low gearing ratios, which were 0.1x in FY2017 and FY2018 and 0.04x in FY2019, are maintained. It had increased somewhat to 0.15x in FY2020 as borrowings grew to support current projects, but we believe it was still manageable. However, Haily’s gearing is likely to drop from 0.15x to 0.03x after the IPO, as RM7 million of the proceeds will be used for bank borrowings.
“While the group does not have a dividend policy in place, it does plan to deliver a dividend of at least 30% of its income attributable to shareholders.” From FY2017 to FY2020, the group distributed RM10 million, RM5.3 million, RM6 million, and RM2.5 million, resulting in payouts of 79.8%, 62.2 percent, 67.8%, and 23.9 percent, respectively,” revealed PublicInvest.
According to the research agency, Haily’s growth will be reliant on expansion into other Johor districts, the purchase of new construction machines and equipment, and the upgrading of office hardware and software.
Low interest rates and favorable lending rules may be major drivers for the group, as well as the availability of financing to fund building activities and government initiatives such as transformation programs and affordable housing schemes.
“Key downside risks, among others, include competition from other construction companies; exposure to the inherent risk in the construction industry; reliance on labor supply; reliance on major customers; reliance on the work of its subcontractors and consultants; and unanticipated increases in costs associated with its construction projects,” the research firm added.
On July 21, Haily Group will be listed on Bursa Malaysia’s ACE Market./n
