SINGAPORE (Oct 10): RHB is downgrading Acromec to “neutral” with a target price of 78 cents, citing a slowdown in government tenders and potential competition from oil and gas engineering companies.

However, the specialist engineering company is expected to continue winning projects in 4Q16 and 1Q17, according to analyst Jarick Seet in a note published on Monday.

Acromec faces tough competition with potential new entrants from the oil and gas space and firms have begun to compete for public sector jobs in the healthcare space, says Seet. The steeper competition will potentially lead to compressed margins on projects tendered.

This does not bode well as there has been a delay in issuance of government tenders in the last few months according to Seet, with tenders delayed to 4Q16. The global economic slowdown as well as the local economic climate has been cited as main factors.

“We expected the local government to invest heavily in healthcare projects in Singapore, but with a delayed timeline,” says Seet.

It is not all doom and gloom, as Seet notes several big project tenders ranging from $40 to $50 million are up soon, with results slated for 1H17. Acromec’s track record with various government organisations such as A*Star and National University of Singapore gives it an edge and reiterates its credibility when tendering.

“It also has the manpower and balance sheet to tender, as well as cope with large-sized projects,” says Seet.

Acromec too is looking to grow inorganically, with a $1 million budget set aside for M&A activities, notes Seet. The maintenance segment is the company’s main recurring revenue stream, and a segment the company is looking to grow.

“We believe its [Acromec] key M&A targets could potentially be companies providing maintenance works for the same industry and field, or downstream services for sub-contractors that it has close and good working relationships with,” says Seet.

Shares of Acromec are trading 1 cent lower at 76 cents.