Fajarbaru Builder - OUTPERFORM - RM300m Sg. Baru station job?

News    The Star reported yesterday that Fajarbaru is expected to bag a RM299m job for the construction of the Sungai Baru light rail transit station (“LRT”) under the LRT extension project by Syarikat Prasarana Negara Bhd (“Prasarana”).

Comments   We are positive with the news. Fajarbaru has always been the frontrunner for the project with management having gotten unofficial indication from Prasarana previously.

The Sungai Baru station will be located next to the Putra Heights station along the Ampang line extension programme.  

The station which will also be slated as a depot for the Ampang line. Worth RM299m, it is one of the last four work packages for the LRT extension project.

Should Fajarbaru secure the contract, it would beef up Fajarbaru’s existing order book of c.RM600m to c.RM900m, providing earnings visibility further out to FY15 (see also impact on earnings below).

Outlook   We believe that Fajarbaru is very well positioned to get a slice of the ETP and MRT projects based on its proven track record and healthy financials. To recap, Fajarbaru is one of the pre-qualified companies for the multi-billion elevated civil, station and depot work packages for the My Rapid Transit project.

Forecast   We maintain our FY12E and FY13E earnings forecast of RM15.8m and RM24.9m respectively at this juncture as we will only factor in the said contract in our forecasts once the Letter of Award is confirmed only. 

However, should Fajarbaru secure the project, our FY13E EPS will increased by 13% to 14.7sen, leading to a higher TP then to RM1.32 (currently RM1.17) based on unchanged 9x PER FY13 earnings.

Rating  MAINTAIN OUTPERFORM  Potential upside of 21% to our existing TP of RM1.17  

The group is trading at FY13E PER of just 7.5x, which is still 20% below its peers’ average of 9x.

Valuation    No changes to our TP of RM1.17 based on 9x PER on its FY13 EPS. 

Risks   The delay in the issuance of Development Orders (D.O.) by the Selangor Government, which will push out earnings recognition to FY14 and beyond.   

Source: Kenanga