Sapphire’s order book hits a record high with RMB873m of worth of infrastructure contracts won on 14 Jul 2016. It seems to be evolving into a serious infrastructure play. However, it is still an under researched, under noticed stock judging from the lack of liquidity and zero analyst coverage.
Noteworthy points on the contracts won
On 14 Jul 2016, Sapphire announced that it has clinched RMB873m worth of infrastructure contracts through its engineering, procurement and construction subsidiary, Ranken Infrastructure Limited. There are some noteworthy points in this announcement.
a) RMB 300m Jian Cao Ping flyover & RMB 313m to construct part of the Urumqi Rail Transit are won, due in part to their existing contracts. This is a sound testament to Ranken’s capability and track record;
b) With these significant contract wins, Sapphire’s order book increased from RMB2.0b (according to 1QFY16 press release) to RMB2.75b (as of now). This is the highest order book announced which corroborates the positive macro industry outlook on infrastructure and management’s positive view on Ranken.
c) Sapphire mentioned that they are in talks with governments in South Asia. This direct contact with the governments is a strong plus point. Personally, from my simplistic “outsider view”, I surmise that since they are talking directly to the governments, instead of a partner, who in turn talks to the government, there is a higher chance of getting the contracts. Furthermore, with a direct connection with the local governments, it is likely that they will have greater visibility of project award and execution.
Yesterday, Sapphire announced incorporation of a wholly owned subsidiary, Mancala Holdings and an update on its mining business, Mancala. (Click HERE). Sapphire explained the primary objective for the incorporation of Mancala Holdings is to facilitate future fund raising exercises for the mining services business of the Group, which may eventually lead to a dilution in the Group’s shareholding in Mancala. If such funding materialises, it will be able to show to the investment community that Sapphire is mainly focusing their time, resources and energies on their infrastructure segment. In other words, it is really a serious infrastructure player.
Sapphire’s chart seems to have improved. Since Jan 2016, it has traded within a range of $0.240 – 0.300. Based on Chart 1 below, Sapphire gaps up on relatively strong volume with 1.2m shares transacted which is a six-month high trading volume. (yes, Sapphire has been an illiquid stock, exacerbated by the 3 shares to 1 share consolidation.)
Sapphire closed at $0.290, the highest closing price since 10 Mar 2016. ADX has been creeping higher and crossed above 20, indicative of a budding trend. (However, it still needs some time to see whether ADX can strengthen more.) Both 21D and 50D EMA are slowly rising with 21D forming a golden cross with 50D EMA. This seems to be a bullish development. 200D EMA has stopped declining and turned flat. Indicators such as MACD and RSI are strengthening with MACD forming bullish crossovers.
A sustained break with volume expansion at $0.240 / 0.300 points to an eventual measured technical target of around $0.180 / 0.360 respectively. In my opinion, the probability for an eventual bullish breakout outweighs that of a bearish breakdown.
Near term supports: $0.275 / 0.265 / 0.250
Near term resistances: $0.300 / 0.310 / 0.330
Chart 1: Probability of a bullish breakout > bearish breakdown
Source: Shareinvestor as of 15 Jul 2016
Conclusion – 2Q results is key
I have written previously that Sapphire is evolving to be a proxy to infrastructure growth. Since my first write-up on Feb 2016, Sapphire has seen some enquiries (or interest) from the investment community, such as fund managers and analysts. My personal view is that 2QFY16F results is likely to be crucial in a couple of aspects:
a) 2QFY16F results are likely to be announced between 11 – 15 Aug 2016. Together with 4QFY15 and 1QFY16, the investment community will be able to have a sense of Ranken’s results and whether these results are sustainable and improving;
b) 2QFY16F results, together with 4QFY15 and 1QFY16 and coupled with the rising order book, will also increase the investment community’s confidence in Sapphire’s management.
Look forward to Sapphire’s results!
P.S: Readers who wish to know more about Sapphire can refer to their informative website HERE for more information. Readers can also refer to my write-ups on Sapphire below
a) Sapphire’s chart strengthens (5 May 2016) (click HERE);
b) Sapphire – proxy to infrastructure growth (5 Feb 2016) (click HERE).
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