KUCHING: Signs of projects picking up pace in the East Coast Economic Region (ECER) may yield a potential airport job for Sarawakian Vivocom Holdings International Bhd (Vivocom).
In a recent update, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) explained that the recent positive frenzy on the investment inflow of the ECER is a clear sign of potential construction projects within its scope picking up pace.
The project that would be most relevant to Vivocom is the East Coast Railway Link (ECRL) that will make its last stop in Kelantan at the Sultan Ismail Petra Airport (SIPA).
According to the research arm, the China Railway Construction Corp Ltd (CRCC) is expected to clinch a RM450 million to expand SIPA due to the China Construction Communication Company’s (CCCC) involvement in the construction of the ECRL.
Currently, the airport has reported a passenger growth rate of +10.37 annually for the past five years since. This immense growth rate has caused its passengers numbers to surge to 2.06 million 2016, despite the airport having the capacity to only handle 1.45 million passengers.
“Thus, it is crucial that the airport upgrade for a 4.0 million passenger capacity must be concluded before the ECRL is completed in 2024.
“Moreover, Export-Import Bank of China would be able to provide soft loans, thus allowing for increased chances of Vivocom being able to undertake the potential subcontracting job,” said the research arm in a report.
The proposed upgrades at the moment for SIPA include an apron expansion, enlargement of runway/taxiways, and the construction of new terminals such as contact pier finger terminals.
MIDF Research is anticipating that these packages will be not be segmented, leaving room for Vivocom to potentially end up taking up the entire package.
If the group ends up receiving the entire package, the impact towards Vivocom’s earnings would be highly positive as the research arm estimated it to amount to 75 per cent of its target orderbook replenishment rate fo FYE18 on the back of a 12 per cent margin.
“We are not foresseing any margin compression as the current SIPA design is based on open apron and its upgrades will not change the original layout but merely upgrading its service capacity,” added the research arm.
With that said, MIDF Research is highly optimistic on the group’s long-term prospects and reiterates its ‘buy’ call on its stock with a target price of RM0.40 per share.