Pesona Metro building a stronger footing, more upside expected

Pesona Metro Holdings Bhd has had an amazing run in a short span of four months.The counter jumped from its year low of 16 sen in April to reach a high of 26 sen in August.

The company focuses on planning, designing, financing, and constructing public buildings and amenities, student hostels, laboratories, and infrastructure projects. Heightened interest in the company could stem from its success in replenishing its order book.

In June, Pesona won a RM180.84 million contract to undertake subcontract works for the construction of the Malaysian National Film Development Board’s (Finas) headquarters in Damansara Damai, Petaling Jaya. This is the fourth contract that the construction group has secured this year.

Its wholly owned unit Pesona Metro Sdn Bhd received the subcontract works from main contractor MRCB Builders Sdn Bhd on June 13 for the execution and completion of the main building works. The project — with a duration of 18 months from the date of site possession — is expected to contribute positively to the group’s earnings and net assets.

The group made a net profit of RM1.42 million for the first quarter ended March 31, 2023 (1QFY2023) after a third straight quarterly loss. Profit for 1QFY23 grew 27.9% from RM1.11 million a year earlier on higher revenue and lower operating expenses. Revenue for the quarter under review increased 14% to RM108.34 million, from RM95.05 million previously.

Its construction segment appear to be emerging out of woods with improved margins . The group’s construction businesses faced challenges in recent years due to margin squeeze from rising costs for materials, labor, and transportation.

Bulk of the low-margin projects are at tail end of the construction cycle and recent contracts with better margins to aligned with the inflationary pressure are expect to kick off over the foreseeable future.

Combined with a stable input cost environment and a robust order book valued at RM2.2 billion, Pesona is expected to achieve significant financial growth in upcoming years.

It diversified into the property development segment, which offered a new revenue stream and potentially pave way for asset injection.

The group has proposed acquiring a 51% stake in Gaya Kuasa Sdn Bhd, which is deemed a related private entity, with the deal expected to close by the end of 2024.

There is also a potential M&A activity with another privately owned entity by the major shareholder, Juta Asia.

Investors are probably keen on Pesona given its undemanding valuations as it is trading below its intrinsic value, with a 1-year forward price earnings multiples of of 7.2x in FY25 versus the sector average of 16x.

Given its resilience and adaptability, reducing losses to RM5.4 million in FY21 and achieving a robust recovery in FY23, the company could see further upside in its share price.Activate to view larger image,