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PP 7767/09/2011(028730)

RHB Research 2010


22 October
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

N ew s Up dat e
MARKET DATELINE 22 October 2010

Fajarbaru Builder Group Share Price


Fair Value
:
:
RM1.04
RM1.37
Lands RM36.5m Pasir Mas Halal Park Infrastructure Recom : Outperform
(Maintained)
Job

Table 1 : Investment Statistics (FAJAR; Code: 7047) Bloomberg: FBC MK


Net FD Net
FYE Turnov Profit# EPS# Growth PER EPS# C.EPS* P/CF P/NTA ROE Gearing GDY
Jun (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (x) (%) (%) (%)
2010 165.9 24.7 16.2 34.3 6.4 - - 4.3 1.2 18.4 Cash 5.8
2011f 233.0 25.1 14.4 (10.8) 7.2 13.0 - 14.0 1.2 16.6 Cash 5.8
2012f 284.0 28.0 15.2 5.5 6.8 14.5 - 12.2 1.1 16.3 Cash 5.8
2013f 315.0 30.2 16.4 7.6 6.3 15.5 - 10.9 1.0 15.6 Cash 5.8
Main Market Listing /Non-Trustee Stock /Syariah-Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ Second key contract in FY06/11. Fajarbaru has been awarded by the Issued Capital (m shares) 170.0
Market Cap (RMm) 176.8
East Coast Economic Region (ECER) Development Council a RM36.5m
Daily Trading Vol (m shs) 0.6
contract for earth and infrastructure works for Phase 1, Pasir Mas Halal
52wk Price Range (RM) 0.89-1.14
Park in Kelantan. This is the second key contract Fajarbaru has secured
Major Shareholders: (%)
so far in FY06/11, boosting its YTD new contracts secured to RM99m and Big Victory Holdings 13.1
outstanding construction orderbook by 8% from RM459m to RM496m Tan Sri Chai Kin Kong 7.4
(see Table 2). To recap, just last month, Fajarbaru was awarded by also Dato’ Ir Low Keng Kok 7.2
the ECER Development Council a RM62.4m contract for earth and
FYE Jun FY11 FY12 FY13
infrastructure works for Phase 2, Automotive Industrial Park in Pekan-
EPS Revision (%) - - -
Peramu, Pahang. Assuming an EBIT margin of 10-12%, the latest
Var to Cons (%) na na na
contract will fetch RM3.7-4.4m EBIT over the 15-month construction
period commencing Nov 2010. PE Band Chart

♦ Forecasts. Maintained as we have assumed Fajarbaru to secure


RM250m worth of new jobs per annum in FY06/11-12.

♦ Risks. The risks include: (1) New contracts secured in FY06/11-12


coming in below our target of RM250m per annum; and (2) Rising input PER = 9x
costs. PER = 7x
PER = 5x

♦ Construction stocks to do well. We are upbeat on construction stocks


as we believe they will continue to generally outperform the market from Relative Performance To FBM KLCI
4Q2010, buoyed by news flow from: (1) The infrastructure development
for the Greater KL National Key Economic Area (NKEA) under the
FBM KLCI
Economic Transformation Programme (ETP), particularly, the RM40bn
MRT project; (2) The RM7bn Ampang and Kelana Jaya LRT line extension
project; and (3) Federal land deals.
Fajarbaru
♦ Maintain Outperform. Fajarbaru, via Fajarbaru Builder Sdn Bhd –
Signatium Construction Sdn Bhd JV, has been pre-qualified to bid for the
LRT line extension project as main contractor as well as segmental box
girder sub-contractor. Also, additional kickers will come from its still
undemanding valuations, coupled with a strong balance sheet with a net
cash of RM124.5m as at 30 Jun 2010, translating to a whopping Joshua CY Ng
75sen/share. Indicative fair value is RM1.37 based on 10x fully-diluted (603) 92802151
joshuang@rhb.com.my
CY11 EPS of 13.7sen, in line with our benchmark 1-year forward target
PER for the construction sector of 10-16x.

Please read important disclosures at the end of this report.

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22 October 2010

Table 2 : Outstanding Orderbook


Project Outstanding Value
(RMm)
Seremban-Gemas double-tracking 200
Tampin Hospital 128
Aqua-culture project in Terengganu 69
Earth & infrastructure works for Automotive Industrial Park, Pahang 62
Earth & infrastructure works for Pasir Mas Halal Park, Kelantan 37
Total 496
Source: Company

Table 3: Earnings Forecasts Table 4: Forecast Assumptions


FYE Jun (RMm) FY10a FY11F FY12F FY13F FYE Jun FY11F FY12F FY13F

Turnover 165.9 233.0 284.0 315.0 Construction EBIT margin (%) 13.5 12.4 11.0
Turnover growth (%) -10.1 40.4 21.9 10.9 New orderbook secured (RMm) 250 250 400

EBITDA 29.8 32.4 36.0 38.6


EBITDA margin (%) 17.9 13.9 12.7 12.3

Depreciation -0.8 -0.8 -0.8 -0.8


Net Interest 2.1 2.0 2.2 2.4
Associates 0.0 0.0 0.0 0.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 33.0 33.5 37.4 40.2


Tax -8.4 -8.4 -9.3 -10.1
PAT 24.6 25.1 28.0 30.2
Minorities 0.1 0.0 0.0 0.0
Net Profit 24.7 25.1 28.0 30.2
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary
to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an
offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever
and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time
have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy
will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for
any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group
may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans
of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services
from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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22 October 2010
Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,
subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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available for download from www.rhbinvest.com

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