Salcon ... Mar11

Inet Research - Investment Highlights/Summary

 Salcon is an engineering specialist offering comprehensive end-to-end services in water and wastewater treatment. Salcon currently owns and operates 7 water concessions and 2 wastewater concessions in China and Malaysia. It also has an effective stake of 36% in Binh An Water Corporation Ltd. which operates under a concession agreement to treat and supply water in Vietnam.

 The Concession segment has been generating steady, recurring profit. We believe its current profit base has yet to reflect the full potential and the design capacity of the Concession segment, as some of its WTPs have yet to commence operations.

 The reduced stake in Salcon Asia will result in earnings dilution in the short term, but the doubling in production capacity will be more than enough to compensate for the earnings dilution.

 The unbilled portion of RM436m will sustain Construction segment profit for the next 1-2 years.

 The stock is currently trading at its NTA of RM0.62/share, which does not reflect the promising long-term prospects of its growing concession-based business in China. Based on our adjusted NTA taking into account the exceptional gain of RM60.1m, its adjusted NTA would increase to RM0.75/share.