Acromec Ltd - RHB Invest 2016-08-05: Contracts Rolling In

Acromec Ltd - RHB Invest 2016-08-05: Contracts Rolling In ACROMEC LIMITED 43F.SI 

Acromec Limited - Contracts Rolling In

  • Acromec has won another SGD10.3m worth of contracts from a repeat customer to fit out a Class 100 research cleanroom at Fusionpolis, which is expected to be delivered by 2Q17. 
  • Going forward, we believe it will continue to win larger contracts and deliver stellar results, backed by robust government plans for the healthcare and medical sector. As such, its prospects are bright. 
  • Coupled with its potential M&A plans to further boost earnings, we maintain BUY with a DCF-backed TP of SGD0.92, implying a 13.4x FY17F ex-cash P/E.

Acromec continues to deliver, securing contracts of SGD10.3m. 

  • The contract involves fitting out a Class 100 research cleanroom at Fusionpolis, a repeat customer, which is expected to be delivered by 2Q17. This clearly shows the satisfaction of the customer from previous projects, further strengthening the relationship with them. 
  • With contract wins of SGD12.5m in Apr 2016 and the recent contracts of SGD10.3m, the tentative total contract wins for 2H16 sums up to SGD22.8m, in line with our expectation. This will add up to revenue of SGD45m, representing a 27% increase YoY in total revenue. 
  • Going forward, we believe that Acromec will continue to deliver stellar results, tapping on the increasing government spending on healthcare and research development.

Larger contracts awaiting ahead. 

  • The company has managed to strengthen its foothold in the healthcare sector and currently has a tenderbook of about >SGD200m. We think that its future potential projects would be much larger in value, and may be individually worth SGD50m-100m. It has the manpower as well as the balance sheet to tender and cope with such large-sized projects. 
  • Acromec already has a proven track record with various government organisations like A-Star, National University of Singapore and other hospitals – this would give it an advantage and boost its creditability when tendering for contracts.

Robust 2-year NPAT CAGR growth of 54%. 

  • The company’s stellar 1H16 results indicate that it may continue performing well in the future, further accredited by its recent contract win. This is in line with the main reason behind its IPO back in April – to raise cash for its rapid expansion to capture the future strong and fast upcoming growth. 
  • As the healthcare sector in Singapore is set to expand rapidly in the next few years, we think that Acromec would likely continue to deliver stellar results and strong NPAT earnings CAGR of 54% in FY16F-18F.

Maintain BUY. 

  • With its strong balance sheet and a business that is anticipated to generate substantial positive cash flow from operations, coupled with its potential M&A plans to further boost earnings, we have a conviction BUY on Acromec
  • Our DCF-backed TP of SGD0.92 implies 13.4x FY17F ex-cash P/E. Key risks to our call include execution risks.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-05
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.92 Same 0.92