AZRB (FV RM0.88 - TRADING BUY) 1QFY12 A Decent Start to 2012

Ahmad  Zaki (AZRB)’s reported core earnings of RM5.5m for  1QFY12 met our expectations.  With RM1.9bn worth of jobs in hand, the current outstanding orderbook could last them well into 1HFY14, assuming a run rate of RM200m per quarter. While we make no changes to our core assumptions for now, we are upgrading our call from Neutral to TRADING BUY, following the recent weakness in its share price. Our FV now stands at RM0.88.

Within expectations.  AZRB’s 1QFY12 revenue  came in at RM146.0m (+17.1% y-o-y, +3.5% q-o-q), while its core earnings stood at RM5.5m (+5.7% y-o-y, +85.3% q-o-q). The numbers are within our expectations and represent 20.0% and 21.6% of our  respective full-year  estimates. On a segmental  basis, contribution from its construction division stood at RM125.6m (+11.6% y-o-y, +5.4% q-o-q) at the top-line level, while its bunkering division also improved to RM18.6m (+76.2% y-o-y, +27.9% q-o-q). At the PBT level, growth was driven by its construction division which chalked up RM11.1m (+43.1% y-o-y, +>100% q-o-q) during the quarter, while its oil and gas division  only reported a PBT of RM4.9m (-19.7% y-o-y, +60.2% q-o-q) as margins were affected by higher operating expenses and direct costs. On the  other hand, its plantation division  reported a loss of RM2.7m at the PBT level due to the low fresh fruit brunch production yield from young oil palm trees which have just attained maturity.

RM1.9bn outstanding orderbook. YTD, the company managed to bag RM765m worth of jobs, including the v6 KV MRT viaduct package running from Plaza Phoenix to Bandar Tun Hussein Onn. With that, its outstanding orderbook currently at RM1.9bn, could last them well into 1HFY14 assuming a run rate of RM200m per quarter. We are forecasting an orderbook replenishment target of RM1bn in FY12 and RM400m in FY13.

Upgrade to TRADING BUY. Following the release of its 2011 Annual Report, we have updated our retrospective numbers which triggered a slight downward revision of 3.9% and 3.3%  to our FY12 and FY13 earnings forecasts respectively. With that, our FV is revised to RM0.88 based on an unchanged 10x FY12 PER. Given the recent weakness in its share price which provides >20% potential upside to our FV, we are upgrading our call back from Neutral to TRADING BUY (our last downgrade was on 1 March 2012).  

Source: OSK