The Singapore research team at UOB Kay Hian feels there may be a turnaround in sight for AGV Group Limited.
The team notes that the steel galvanising company reversed back into a positive earnings before interest, taxes, depreciation and amortisation (EBITDA) position for the FY2020 and 1HFY2021.
“This was achieved even with the impact from Covid-19. AGV currently trades at a historical 33 times FY2020 enterprise value (EV) /EBITDA,” it writes in an unrated report dated July 13.
The team issued the report following a visit to AGV’s galvanising plant, which provides coating services for construction and offshore and marine sectors.
To them, it sees AGV as being a beneficiary of the resumption in construction services and continued infrastructure development.
“[The] ramping up of construction galvanising services following Malaysia’s Movement Control Order
(MCO) along with easing manpower constraints in Singapore will likely aid the group’s sales tonnage volumes,” says the UOB Kay Hian team.
AGV’s two plants in Singapore and Malaysia have a monthly maximum plant capacity of almost 10,000 metric tonnes (mt), which serves the construction and offshore and marine industries.
“Structural tailwinds will also come from infrastructure projects that are slated for development in Singapore, such as the Jurong Region Line,” it adds.
The Building and Construction Authority (BCA) has estimated that demand for construction will reach some $23 billion to $28 billion in 2021 and rise to a range of between $25 billion to $32 billion from 2022 to 2025.
“Between 2012-16, construction demand averaged a high of approximately $31.8 million per annum according to BCA, while AGV recorded revenue of $15 million to $20 million and net profit of $0.6 million to $2.2 million, a profitable period for the group,” notes the team, which sees AGV to benefit from the easing of Covid-19 restrictions and riding on the upcycle potential.
Furthermore, AGV’s work as a steel galvanising firm is an essential part of the construction and development process since galvanised structures would ensure a longer lifespan to structures.
There are currently five players in Singapore, including AGV’s competitors Progress Galvanising and Super Galvanising.
The group, in recent years, is also looking to turn around the business following various changes, including a change in management in FY2019. The group also conducted a debt restructuring exercise in FY2021.
“Following the management changes, AGV’s utilisation rate of its Singapore plant improved to 34% in FY2020, compared with 22% in FY2019. EBITDA also improved to $0.8 million in 2020, reversing from a loss position in the previous year. On a pro-forma basis, net gearing has also been reduced to 1.6 times,” notes the team.
The group also announced an internal restructuring in April 2020. During the process, the group changed some of the names of its subsidiaries to AGV Investment (Malaysia), AGV Investment (Indonesia) and AGV Investment (Vietnam) to reflect its plans to expand in Southeast Asia.
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Indonesia’s construction and infrastructure sectors are also expected to see a strong recovery in 2021, according to Fitch Solutions, which could boost AGV’s prospects.
As at 4.53pm, shares in AGV are trading flat at 2.2 cents.
Photo: AGV
