Salcon Berhad (Salcon - 8567) is well known as a water and wastewater infrastructure contractor and specialist. However, the latest changes in the boardroom which saw the emergence of Dato Eddy Leong had saw Salcon putting a focus into property development and construction. The group is also involved in telecommunication infrastructure through the it's 50% + 1 share stake in Volksbahn Technologies Sdn Bhd that hold the exclusive rights to lay fibre optic cables on Prasarana Malaysia Berhad rail network and premises for up to 15 years.
Growing up from a small company that provide water treatment for palm oil mills, Salcon had evolved into a water and wastewater specialist that had to date completed more than 900 water and wastewater project in Malaysia, Thailand, Sri Lanka, Vietnam and China.
While the Year 2016 is a rocky year for most investment as volatility increase in the global market, it is crucial for asset and fund manager to seek to value protection as well as good bargain during any panic sell down. Given that, Salcon could be one of the good candidate for this cause.
Salcon long term chart had suggested that the region of RM 0.57 had been one of the strongest support line for the past 2 years. It had from 2 occasions rebounded strongly after a series of panic selling, chalking up more than 10% gain.
The support line is further supported by massive open market share buy back from the company. In fact, Salcon had been actively buying back share from the open market at the price range of RM 0.56 to RM 0.60 during this period of time. However, it is notable that Salcon had bought from open market at the price range of RM 0.70 before the market turn volatile.
Salcon - Water of Life
Salcon is current still having an existing book order balance of RM 700m from the book of RM 1.1 billion that it had secured. A huge chunk of the book order is contributed by the Langat 2 Water Treatment plant, whereby Salcon work is estimated at RM 358 million from the total of RM 1 billion. The Langat 2 Water Treatment plant is a joint venture between MMC, AZRB and Salcon.
As
the Langat 2 Water Treatment plant is slated for completion in 2017 in
order to cater for the growing demand, the delay and fiasco that is
caused by the water asset restructuring exercise had put Langat 2 Water
Treatment plant completion back by 2 years, which is 2019.The delay had caused critical supply issue that had to be addressed immediately, prompting Selangor government to dish out 2 water treatment plant in 2016 in order to ensure continuous water supply between 2017 to 2019. Semenyih 2 and Labohan Dagang, Kuala Langat carries a total value of RM 800m will see work order to start as soon as 2nd quarter 2016.
According to close sources that are familiar with this matter, it is imminent to see Salcon involvement in construction project as Puncak Niaga had exited the water business in Selangor. Familiar sources are looking for Salcon to bag in approximately RM 400m to RM 500m from the total project value of RM 800m from the 2 alternative water treatment plant. Sources had indicated that subsequent announcement and update should come in by March 2016.
Incidentally, Salcon had also saw massive mop up of shares in the open market in the middle of November 2015 with more than 28 million shares transacted in the open market in a single day, putting up a solid bullish closing on the 12th November 2015. The huge open market accumulation could had further strengthened the basis of Salcon involvement in the alternative water treatment plant.
Due to the urgency of the project, Salcon involvement in both the alternative water treatment plant (Semenyih 2 - 100mld and Labohan Dagang, Kuala Langat - 400mld) will contribute to strong earning for FYE 2016 and FYE 2017.
Others
Salcon had signed two 10 year contracts with U-mobile and Celcom for mobile site rental for shared infrastructure through their subsidiary, Volksbahn Technologies Sdn Bhd which will see recurring income kicks in as soon as 2017.
Salcon also had replenished book order by RM 5.4 million for the rehabilitation, operation and maintenance management of a distribution system in Bukit Kecil, Terengganu.
Salcon had up to date tendered RM 2billion of works, and expect a success rate of 20% to 30% which will replenish their work order.
Salcon will be looking to materialize a one off RM 50 million gain from the last remaining water concession in China that is in the process of disposal.
Salcon current in net cash position of approx RM 0.24 per share
Conclusion
Based on the above events and opportunity, Salcon is a great look at the current price level to be invested in. A short term outlook could see Salcon challenging back to RM 0.65.
http://bonescythe.blogspot.my/2016/02/salcon-watering-flakes-of-gold.html
