News Fajarbaru announced that it had been notified
by MESB, which is a wholly-owned subsidiary of MRCB, that the latter had
cancelled the previous sub-contract award for the Ampang LRT extension project
worth RM289m to the company.
This came about as
the contract had been taken over by Prasarana from MESB, where the former had
also assumed the liability and cost for the package (project). Prasarana has
now reawarded the contract back to Fajarbaru.
The contract scope is
mainly for the construction and commission of depot works in Kuala Sungai Baru.
Comments To
recap, the contract was initially awarded to Fajarbaru by MRCB Engineering Sdn
Bhd (MESB) back in May-12. However, MESB has now terminated the contract with
Fajarbaru as highlighted above.
We are neutral on
this news as we have already imputed in the project in our earnings forecasts. However,
this news could be a slight positive to Fajarbaru as we expect the contract to
now carry a better margin for the company due to it being on the main
contractor status now. On top of that, based on its track record, one of the
key advantages for Fajarbaru is that is has ability to help Prasarana directly
in realising cost and time benefits for the project via proposed alternative designs,
which should enhance the project’s margin.
Outlook Fajarbaru’s outstanding order book currently stands
at c.RM800m, which will provide it earnings visibility for the next three
years. Moving into FY14, we believe that Fajarbaru will be able to go on full
swing in executing its outstanding order book of c.RM800m.
Forecast There are no changes in our earnings
estimates.
Rating Maintain UNDERPERFORM
We are maintaining
our UNDERPERFORM recommendation on Fajarbaru as we believe that the recovery
for Fajarbaru will remain slow in FY13 due to its site possession issues.
Valuation No changes to our TP of RM0.51, based on 5.0x
PER on its FY14E EPS.
Risks Delay in LRT works by the main contractors.
Escalating building
material prices.
Source: Kenanga
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