Dragged down by the wider-than-expected losses in its plantation division, Ahmad Zaki’s (AZRB) 1HFY12 core earnings of RM11.2m were slightly below our expectation, comprising only 44.3% of our full-year estimate. Hence, we are cutting our FY12 earnings forecast by 9.1% while leaving our FY13 and FY14 numbers unchanged. With RM1.75bn worth of jobs in hand and potential for more jobs post general election, we maintain our TRADING BUY call on AZRB, with our FV unchanged at RM0.90.
Slight disappointment in plantation. AZRB’s 1HFY12 revenue came in at RM340.0m, up 30.6% y-o-y owing to higher contribution from both its construction and bunkering divisions, which registered growth of 28.7% and 61.1% respectively over the period. EBIT, however, rose at a smaller 20.1% to RM26.5m as the margin improvement in construction was more than offset by the lower bunkering margin, as well as a wider-than-expected loss in its plantation division, which is at its initial harvesting stage. On a quarterly basis, the 2QFY12 numbers improved both y-o-y and q-o-q, with revenue of RM194.0m and a net profit of RM5.8m during the quarter.
RM1.75bn-strong orderbook. YTD, the company has secured RM765m worth of jobs, comprising the v6 viaduct package awarded by MRT Corp. Its outstanding orderbook of RM1.75bn could last it well into 1HFY14, assuming a run rate of RM200m per quarter. We make no changes to our replenishment target of RM1bn for FY12 and RM500m p.a. for both FY13 and FY14.
Lowering earnings. We are slashing our FY12 earnings forecast by 9.1% to incorporate wider losses from its plantation division, taking into account AZRB’s YTD performance. Having said that, we make no changes to our FY13 and FY14 estimates as we remain adamant that the division, with a planted area of over 5,000ha with trees averaging three years, would start to contribute, albeit still insignificantly, by FY14.
Potential election play. We expect more developments from the proposed 40km Kuala Lumpur Outer Ring Road (KLORR), most likely after the 13th general election, as management has pointed out that the concession agreement would be finalized soon, followed by financial closure. Should the project get the nod from the relevant authorities, this could be a major re-rating catalyst for AZRB, especially if the terms of the concession worked out in the company’s favour in the long run.
TRADING BUY. We continue to like AZRB as a trading play given its undemanding valuation, sturdy orderbook, and potential to win more jobs post election. Hence, maintain TRADING BUY, at an unchanged FV of RM0.90, based on a 10x FY13 PER.
Source: OSK
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