Reclaims Global (NEX.SG): cheap construction stock from Singapore, based on earnings

Reclaims Global Limited is “is an eco-friendly integrated service provider which serves the construction industry of Singapore. The Group specialises in the recycling of construction and demolition waste, customisation of excavation solutions and operating fleet management.” The company operates a fleet of tipper trucks and also owns other construction and recycling equipment.

Photo by Sebin Lalu on Unsplash

The stock trades on the Singapore Stock Exchange with ticker NEX. The company went public on 1 March 2019 at 0.23 SGD per share. See also this newspaper article from 11 March 2019.

See the annual report over the year ending on 31 January 2022. Excavation services and “Logistics and Leasing” are good for almost 80% of the revenue and the rest is mainly from Recycling. All revenue is generated in Singapore.

The auditor mentioned the following key audit matters: “Revenue recognition for contract revenue” and “Impairment allowance on trade receivables and contract assets”.

I did not find any issues with board composition. Although the executive chairman has the same name as the COO (also an executive director) I have not found any mention that they would be close family members.

The balance sheet is strong with low leverage, a high current ratio, lots of cash and no debts. There are some minor lease liabilities.

I do not have enough years of financial reports to compute the multi-year metrics for judging earnings quality and asset allocation. Next year, I should have enough data to compute these metrics. I expect them to be very good.

The company pays dividends: 0.01 SGD in financial year 2022 (over financial year 2021) and 0.0038 SGD in financial year 2021 (over financial year 2020). I do not think the company will pay a dividend over financial year 2022.

Substantial shareholders: executive chairman Mr. Chan Chew Leh 39.13%, CEO Mr. Tan Kok Huat 38.64%, former director and CEO Andrew Dekguang Jhou Chew 7.46%.

Related party transactions: The company mainly provides services and also sells goods to (affiliates of) directors. The company also rents equipment and machinery from such parties and receives some services. The amounts are small. I do not think there is anything worrisome going on here.

Last financial year the executive chairman and the CEO both earned between 550k and 650k SGD including a bonus of 38% of their base salary. The COO earned between 350k and 450k SGD including a bonus of 54% of her base salary. In the current financial year they will earn less because they took a COVID related temporary pay cut. From December 2021 they have been earning their regular salary again. In total key management compensation was 1.9 million SGD, excluding director fees.

My take: Extremely cheap nanocap in the construction business in Singapore. Cheap based on EV/EBIT, P/FCF and EV/Revenue. Also cheap based on P/Retained earnings from the last 8 financial years. Probably a good quality business too.

I have not found any serious governance issues. That said, the CEO and executive chairman together control the vote. I do not know the ins and outs of the Singapore labor market but my feeling is they are getting better paid than others in Singapore, with similar jobs.

All in all, I think this is a very good stock to own.

Disclosure: Long Reclaims Global Ltd.