This Construction Company Might be Deeply Undervalued?

In recent years, construction companies have gained increased investor attention, particularly with major infrastructure developments underway in Johor and anticipation surrounding Malaysia’s Budget 2025. The Bursa Malaysia Construction Index has also surged year-to-date, reflecting growing interest in the sector.

Among the companies in the spotlight is Varia Berhad, formerly known as Stella Holdings Berhad. Following a significant corporate restructuring in November 2023, Varia acquired Pembinaan Teguh Maju Sdn. Bhd. (“PTM”) in a deal valued at RM380.0 million. This acquisition, funded through cash and equity, enabled PTM to access the capital markets, positioning it for expansion into new markets and larger-scale projects.

One key aspect of the acquisition was a profit guarantee provided by PTM’s former shareholders. This guarantee promises RM120.0 million in aggregate profits over a three-year period, averaging RM40.0 million annually. PTM has already reported completed projects valued at RM40 million to RM50 million, giving confidence that the company is well on track to meet its financial commitments.

In addition, Varia’s order book currently stands at RM2.57 billion, ensuring a steady stream of revenue over the next few years. This strong pipeline includes high-value infrastructure projects like the Rancangan Tebatan Banjir Sungai Johor Fasa 1 Pakej 1 contract worth RM334.7 million. The flood mitigation project, with a completion target of July 2029, reflects Varia’s growing focus on infrastructure.

Varia’s acquisition of PTM has broadened its scope in the construction industry, enabling the company to bid on projects valued at RM1.0 billion or more, a significant leap from their previous ceiling of RM300.0 million to RM400.0 million. With PTM's expertise in commercial buildings, road construction, and government projects, Varia has diversified beyond its historical focus on water-related construction contracts.

With strong leadership, a diversified project portfolio, and a robust order book, Varia Berhad stands out as a potentially undervalued construction giant in Malaysia. As the company continues to secure high-value contracts and expand its capabilities, there is a strong case for investor optimism. With major developments on the horizon, including large infrastructure projects and potential government support from Budget 2025, Varia is well-positioned to capitalise on the opportunities ahead.