PICORP: Undervalued Gem with Green and Halal Growth Catalysts

Progressive Impact Corporation Berhad (KLSE:PICORP) has long been overlooked by investors, trading at a fraction of its net asset value (NAV) despite its recent strategic wins and operational improvements. With a market cap of just RM32.9 million (5 sen/share) versus a NAV of 7 sen, the stock presents a compelling entry point for investors willing to look past short-term losses and focus on its long-term growth trajectory. This article argues that PICORP's improving return on capital employed (ROCE), contracted wins in environmental and halal sectors, and undervalued balance sheet position it for a valuation rebound.

ROCE: A Silent Turnaround Story

The most underappreciated metric for PICORP is its ROCE, which has surged by 42% over five years to reach 17% in trailing twelve months (TTM)—far above the Commercial Services sector average of 7.1%. This improvement signals management's success in deploying capital efficiently. For instance, PICORP has reduced capital employed by 26% while boosting earnings before interest and taxes (EBIT) to RM15 million. The ROCE turnaround is critical because it suggests the company can generate higher returns without proportional capital investment, a hallmark of sustainable growth.

Contract Wins: Fueling Revenue Growth

PICORP's recent contract wins are the linchpin for its recovery. In 2024, it secured:1. RM8.14 million from Saudi Arabia's Makkah Municipality for public health pest laboratory services—a 15-year partnership renewal that leverages its institutional credibility.2. RM19 million in Malaysia for environmental monitoring and wastewater management, underscoring its dominance in domestic environmental services.

These contracts, combined with its halal initiatives (more on this below), could stabilize revenue and accelerate profitability. The RM8.14 million Saudi deal alone represents 8% of FY2024 revenue, showcasing the potential for geographic diversification.

ESG & Halal Synergy: A Double-Edged Sword for Growth

PICORP's dual focus on Environmental, Social, and Governance (ESG) and halal certification creates a unique competitive advantage. Its halal value chain strategy—integrating AI-powered verification (e.g., the Verify Halal app), lab testing, and logistics—aligns with Malaysia's vision to be a global halal hub. Meanwhile, its environmental services (e.g., wastewater management) tap into ESG trends, which are expected to drive US$50 billion in Sukuk issuance by 2025.

Valuation: A 40% Upside at NAV

At 5 sen/share, PICORP trades at a 36% discount to its NAV of 7 sen, a rare opportunity in a market where sentiment is cautiously optimistic. Analysts argue that even a partial reversion to NAV would yield a 40% gain, while a multiple expansion to 10–15X PE (vs. current 7.3X) could push the stock to 10–15 sen—closer to its pre-pandemic highs.

Risks to Consider

1. Profitability Lag: Cumulative losses of RM155 million mean no dividends until retained earnings turn positive.
2. Debt Reliance: Current liabilities now fund 55% of operations, raising liquidity concerns.
3. Management Transition: Founder Zaid bin Abdullah (72) and CEO Dato' Lukman (58) are aging, though their recent share purchases (e.g., Lukman bought 600,000 shares at 7.5 sen in 2024) signal confidence.

Investment Thesis: Buy the Dip, Target 10 Sen

PICORP's undervaluation and strategic momentum suggest it's a high-risk, high-reward play. Investors should:- Entry Point: Accumulate at 5–6 sen, with a stop-loss below 4.5 sen.- Target: 10–15 sen within 12–18 months, assuming: - ROCE-driven EBITDA improvements. - Contract wins boosting revenue to RM120 million+ by FY2026. - NAV recognition by the market.

Conclusion

PICORP is a classic case of a value trap turning into a value play. While risks linger, its ROCE improvement, contracted wins, and undervalued balance sheet create a compelling asymmetry—limited downside at current levels versus significant upside potential. For investors willing to bet on Malaysia's halal ambitions and ESG-driven infrastructure spending, PICORP offers a rare chance to capitalize on a recovery in progress.