09 January 2017 New Listing GFM Services Berhad A steady facility manager INVESTMENT HIGHLIGHTS Orderbook of RM252.6m. Decent PBT margins above 20% Plans to expand service offerings Not rated with FV of RM0.42 based on FY17F PER of 11x Business Overview: GFM Services Bhd (GFM) provides integrated facility management services and consultancy services to clients from public and private sectors. It has completed RM1.2b worth of projects over the course of 16 years since establishment. It will resume AsiaEP Resources Bhd s listing status through a reverse takeover. RETURN STATS Listing Price (9 Jan 2017) Fair Value Expected Share Price Return Non-rated Fair Value (FV): RM0.42 RM0.38 RM0.42 12% Expected Dividend Yield 4% Expected Total Return +16% Investment theses: 1. Orderbook of RM252.6m. This should keep earnings visibility for 3 years. Beyond 2020, it has an RM124.4m contract from the Universiti Teknologi Mara Malaysia, Tapah campus that lasts for 15 years. The company is particularly strong in the education sector and targets more jobs to maintain workers camp at Rapid, Pengerang. 2. Decent PBT margins above 20% in the previous years. We expect PBT margins to stay over 20% due to the management s experience in executing the jobs as well as its choice of jobs. The company is also asset light, with minimal fixed costs, which allows it to manage its costs efficiently. 3. Plans to expand service offerings. The group targets to expand its services offering as well as to participate actively in government initiatives. It will also continue to utilise information technology to further boost its cost management, efficiency and customer relationship. Valuation: We ascribe a fair value of RM0.42 on GFM based on 11x PER of FY17 EPS. We think the 11x PER is fair compared to its peer AWC Bhd (market cap RM249.7m), which is also trading at 11x. Meanwhile, another big facility management services provider, UEM Edgenta Bhd (market cap RM2.67b), is trading at 16.5 times PER.. STOCK INFO KLCI 1,675.49 Bursa/ Bloomberg Board / Sector Syariah Compliant 0039/ GFM MK ACE/ Trading Services No Issued shares (m) 428.1 Par Value (RM) 0.10 Market cap. (RM m) 162.7 Listing Date 9 Jan 2017 Major Shareholders (%) GFM Global 51.4 Ruslan Bin Nordin 6.35 Zainal Bin Amir 6.17 Mohammad Shahrizal bin Mohammad Idris 6.17 is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures
2 INVESTMENT STATISTICS FYE Dec (RM m) FY13 FY14 FY15 FY16F FY17F Revenue 64.8 56.9 78.6 88.8 99.5 Gross Profit 28.26 22.94 26.01 29.13 31.83 Pretax Profit/ Loss 19.32-2.52 17.63 19.93 21.73 Net Profit/ Loss 14.09-6.21 13.80 15.15 16.52 EPS (sen) 3.52-1.55 3.45 3.54 3.86 EPS Growth (%) 10% -144% 322% 3% 9% DPS (sen) - - - 1.5 1.5 Dividend yield (%) - - - 4.0 4.0 PER (x) 10.79-24.46 11.02 10.74 9.85 GP Margin (%) 43.61 40.36 33.10 32.80 32.00 PBT Margin (%) 29.83-4.43 22.43 22.44 21.85 Source: MIDF Research, company INVESTMENT THESIS Orderbook of RM252.6m that can last the company for another three years. Beyond 2020, it has an RM124.4m contract from the Universiti Teknologi Mara Malaysia, Tapah campus that lasts for 15 years. The company is particularly strong in the education sector and targets more jobs to maintain workers camp. The company has a diverse customer base from different sectors to cushion it from heavily reliant on any single particular job. It serves the education, government agencies, finance, manufacturing, automotive as well as the oil and gas sectors. Profit growth of 3% in FY16 and 9% in FY17 expected. We expect a decent growth for the company as it executes the contracts it has won. In FY16, the company secured RM64.4m worth of jobs. We expect the company to be able to replenish its orderbook due to the increasing demand for outsourced facility management services. GFM has also proven itself over the 16 years in business. The long-term relationship is established with its customers should put it in a good position to renew its contracts. The loss made in FY14 was due to an impairment, which was written back in FY15. Decent PBT margins above 20% in the previous years. We expect PBT margins to stay over 20% due to the management s experience in executing the jobs as well as its choice of jobs. The company is also asset light, employing minimal overheads, which allows it to manage its costs efficiently. The company provides mechanical and electrical systems services, civil and structural services as well as cleaning, landscaping, pest control and other general services. It focuses on providing the high-value jobs and outsources the general jobs to subcontractors. Its main focus is in the education sector as it is involved in facility management or advisory contracts for 5 UiTM campuses in Tapah, Perak; Pasir Gudang, Johor; Mukah, Sarawak and Dengkil, Selangor. Plans to expand service offerings and income stream. The group targets to expand its services offering as well as to participate actively in government initiatives. It will also continue to utilise information technology to further boost its cost management, efficiency and customer relationship. As of FY15, the company has a 6.3% market share in the integrated education segment and 3.7 in the government offices and premises segment. They group aims to focus on these two key segments while growing its revenue stream from oil and gas as well as the private sector.
3 More opportunities to work with asset owners and stakeholders as they outsource the non-core maintenance, facility planning jobs to third party services providers to improve cost and operational efficiencies. GFM will benefit from this shift in outsourcing trend. Market researcher Frost and Sullivan expects the integrated facility management sector to grow at a CAGR of 8.6% from 2016 to 2020. The integrated facility management market in Malaysia was estimated at RM4.1b in 2015. The company can grow through partnerships with concession-owners, construction players and asset owners and/or through merger and acquisition. Healthy balance sheet. GFM has been in a net cash position in FY11, FY12, FY13 and FY15. As of Dec, 2015, the company has a net cash of RM4.8m. It should be able to generate cash faster going forward as the company managed to bring down its receivables from 76 days to 31 days. Due to its healthy balance sheet, the company has set a dividend policy to distribute a minimum of 40% of its core profits. We estimate a decent yield of 4% in FY17 based on this payout ratio. RISKS Non-renewal of contracts Spike in labour costs VALUATION We ascribe a fair value of RM0.42 on GFM based on 11x PER of FY17 EPS. We think the 11x PER is fair compared to its peer AWC Bhd (market cap RM249.7m), which is also trading at 11x. Meanwhile, another big facility management services provider, UEM Edgenta Bhd (market cap RM2.67b), is trading at 16.5 times PER. Syed Muhammed Kifni Ng Bei Shan ng.bs@midf.com.my 03-2173 8461
4 APPENDIX COMPANY BACKGROUND Track record. The company has 26 on-going projects, completed RM1.2b worth of projects and managed a total area of 70 million sq ft up till December 2016. Some of its major current contracts are as follow: Exhibit 1: Some of GFM s current major contracts Orderbook Value (RM m) Contract Period Duration (Years) Jabatan Kerja Raya (Bangunan Sultan Iskandar) 58.4 Dec 2013 - May 2018 4.5 Toyo Engineering & Construction Sdn Bhd (Steam Cracker Complex, RAPID) 58.3 Jan 2016 - Dec 2018 3 Unitapah Sdn Bhd (Universiti Teknologi Mara 21.4 Jan 2014 - Dec 2018 5 Malaysia, Tapah Campus) KP Mukah Development Sdn Bhd (Universiti 26.4 Oct 2016 - Oct 2021 5 Teknologi Mara Malaysia, Mukah Campus) Pangkalan Ikan Central Sdn Bhd -Maintenance 22.6 July 2017 June 2023 6 Tun Hussein Onn National Eye Hospital 4.6 Feb 2016 - Jan 2019 3 Malaysia External Trade Development 25.1 Jan 2016 - Dec 2016 1 Corporation Foreign University 13.8 2016 2021 5 Source: Company Exhibit 2: Some of the facility management contracts awarded to GFM
5 Exhibit 3: GFM s capabilities across various asset categories Exhibit 4: GFM s major milestones 2000 Established 2002 Secured International Islamic University of Malaysia (Gombak) contract 2003 ISO 9001: (Quality Management System) 2007 Secured CIQ contract, Secured first international project-palm Jumeirah Shoreline Apartments, Dubai 2012 Frost and Sullivan Best Practices Award 2013 CIDB Class G7 Score Rating: 4 Stars 2017 Listing on Bursa s ACE Market Exhibit 5: Corporate Structure Upon Listing
6 Hands-on management. The company is founded by three engineers, led by Ruslan Nordin, its managing director who has more than 30 years of field experience. The other two co-founders are Zainal Amir and Mohamad Shahrizal who are also the company s executive directors. Upon listing, the three co-founders will still own 70% in the company. Exhibit 6: GFM Board of Directors
7 is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months.