CNQC International & Vivocom Berhad: A Partnership to unlock potential and multiply value?

With Hong Kong’s CNQC International Holdings  Limited (“CNQC”) now having expressed its interest to be the single largest shareholder in Malaysia’s Vivocom Int’l Holdings Berhad (“Vivocom”) with a 29.75% stake, many investors are wondering what the latter would become – and what sort of transformation to Vivocom would CNQC bring to the table.

For starters, both companies’ main core business is construction – a growth industry – and this development should it materialize would be a “shot in the arm” for Vivocom as it seeks to transform Vivocom into a real estate development and construction powerhouse in Malaysia and, eventually, across Southeast Asia.

Surfshark VPN

Upon completion of the exercise, Vivocom could have the ability to tap onto superior industry techniques and latest construction expertise from CNQC Intl which had enjoyed tremendous successes in delivering multi-billion projects throughout Singapore.

CNQC International emerging as the single largest shareholder in Vivocom alone would bring tremendous value to the equation; the proven track record and brand name of CNQC itself in Singapore could pave the way and open many doors for soaring value enhancement and even multiplication further down the road.

It’s akin to leveraging upon your single largest shareholder strengths, reputation, accumulated expertise and proven track record. It’s like having Warren Buffet on board of your company! It is therefore not farfetched to expect that CNQC’s stunning success would gradually but surely rub off onto Vivocom in time to come if the exercise is completed fully.

Consider this – CNQC International is part of the Qingjian Group in Qingdao, China. The Qingjian Group is one of the first batch of premium quality construction enterprises of the Ministry of Construction in China.

Qingjian Group is accredited as one of China’s Top 500 Enterprises and ENR Top 250 International Contractors and has won awards including the highest honour in China’s construction industry of engineering quality – the “LUBAN AWARD” (the construction industry’s equivalent to the OSCAR AWARD).

According to the annual Engineering News-Record Top Lists, the Qingjian Group’s ranking was at 98th and 81th on the ENR TOP 250 International Contractors in 2014 and 2015, respectively, and is regarded within China’s construction industry as one of its best private companies to have successfully ventured abroad.  In 2014, the Qingjian Group last posted annual turnover of US$7.744 billion, with international income at US$1.315 billion and domestic revenue of US$6.429 billion.

Why would such a mammoth of a company want to become the largest shareholder in Vivocom unless it sees the opportunity to make significant inroads into the Malaysian market for sensational gains and spectacular value enhancement in time to come, either in the foreseeable future or in the longer term.

On this point alone, one would bet for sure that Vivocom is a stock to watch and with a strong growth potential, in all probabilities. It’s no rocket science but pure common sense.

From the share price perspective, the fact that CNQC Intl has a strong presence in Hong Kong as a Main Board listed company could result in growing confidence for Vivocom as definitely a stock to track and watch closely for significant growth.

Bear in mind that at current price at 13c, Vivocom is trading at its 16 months low and at approximately 8 times PE, whilst the average PE for the construction industry in Malaysia is almost double at 15 times. Assuming a PE of 15 times, Vivocom’s share price would hypothetically be traded at 23 sen, providing significant upward trajectory potential for its shares moving forward!

Can one thus reasonably anticipate that Vivocom would in due time eventually realise its potential and a considerable re-rating with CNQC International participation as its single largest shareholder?

When contacted, an independent veteran industry analysts opined that it is highly likely for Vivocom to be meaningfully transformed into “an entity beyond recognition just as CNQC International did over a short span in Hong Kong”.

CNQC International Hong Kong was formerly known as Sunley Holdings Limited, he said, pointing out that, in the last-quarter of 2012, Sunley shares prices were hovering around the HKD 0.80 level when CNQC acquired the company.

Investors then responded positively to this acquisition and prices were driven sharply higher to a historical-high of HKD4.30 in mid-2014.

He observed that, in the 2015-2017 period, prices fluctuated steadily along with intermittent price rallies within the HKD3.70 to HKD2.10 levels.

Price-chart on CNQC since the last-quarter of 2012 (source: Bloomberg).

The outstanding success of CNQC was largely attributed to their many successful award winning projects in Singapore. “Prospects of this bullish scenario being replicated for Vivocom share prices upon the acquisition by CNQC is extremely high,” he said.

Serious to long-term or even short-term investors can now find no reason to unwind their holdings and now would instead look for opportunities to top-up on their investments, he added.

“Vivocom has been on price consolidation between 12 and 14 sen for an extended period and is expected to react bullishly to this CNQC acquisition. It is trading at its 16 months low at 13c, so the upward trajectory is real and realistic”.

“The forecast for the price-target in the immediate term is conservatively a double-bagger at 26 to 28 sen,” he concluded.

Certainly, the Vivocom Group had been positively covered by analysts at one stage with five research houses namely, CIMB, MIDF, Mercury Securities, TE Research and SJ Securities covering the Company with “BUY” calls setting target prices ranging from 40 sen to 75 sen per share, signalling strong upside potential and capital appreciation.

In its most recent update report dated 5th September 2017, research house MIDF Research has continued to maintain a BUY call on Vivocom’s shares with a target price set at 40 sen per share.

Perhaps with CNQC Intl as its single largest shareholder and catalyst for value and wealth creation, it’s about  time for Vivocom to realise its true worth and potential.

Update: This article has been edited and updated in line with latest developments. In an announcement to the Malaysian stock exchange, Bursa Malaysia, on 26 January 2018, Vivocom announced that its two substantial shareholders “have ceased negotiations with CNQC and that the validity period that was extended from 11 January 2018 to 25 January 2018 had lapsed accordingly on 25 January 2018”. In an earlier announcement on 11 January 2018, the company said that the substantial shareholders had “executed an extension letter to extend the validity period of the indicative term sheets with CNQC International Holdings Limited (“CNQC”) until 25 January 2018”. The company added that no binding agreement has been entered into between CNQC and its substantial shareholders. It advised: “As such, the shareholders of Vivocom shall exercise caution when dealing in the securities of the Company.”

Note: This is not a recommendation to buy or sell stocks. Please consult your investment advisor before making any investment decision.

One thought on “CNQC International & Vivocom Berhad: A Partnership to unlock potential and multiply value?”

Comments are closed.