SINGAPORE (June 24): RHB has initiating coverage for cleanroom and laboratory construction specialist, Acromec, with a “buy” recommendation and a target price of 92 cents.
In the first ever earnings release since its listing in April, Acromec reported a three-fold earnings increase to $1.6 million, as revenue doubled to $23.2 million for 1HFY2016. The strong performance arose from the higher number of projects executed during the half year period to March. Excluding the one-off IPO expenses, the group’s earnings would have risen to $2.1 million.
Following its IPO, Acromec was awarded an additional $12.5 million worth of contracts, bringing its current order book to $47 million.
RHB’s Jarrick Seet forecasts that Acromec’s earnings could grow by a compounded average of 54% from FY2016 to FY2018, given that the group is tendering for another $200 million worth of contracts in conjunction with the anticipated expansion in the Singapore healthcare sector. Furthermore, the group’s strong balance sheet and net cash position of $13.3 million would allow it to accommodate projects of larger contract value.
“Acromec already has a proven track record with various government organisations like A-Star, National University of Singapore and other hospitals,” he writes in a report on Friday. “This gives it an advantage and boosts its credibility when tendering for contracts.”
Acromec’s plans to grow its maintenance segment through mergers and acquisitions could provide further growth for earnings, he adds.
The group’s shares are currently trading at an “undemanding” 6.9 times forward earnings. RHB’s target price is 13.4 times forecast earnings for FY2017 and offers an upside of more than 36% from current levels.
Acromec shares closed higher at 67.5 cents on Jun 24.
