Diversifies income stream
9M10 net profit of RM24.1m came within expectations. It accounts 71% and 78% of our forecast and consensus. The net margin improved from 9% to 14% despite of slight drop in revenue by 6%. This is due to more lucrative contract secured during FY10 ie: double track railway and Tampin Hospital. The shrimp farm project for Khazanah unit in Terengganu is currently on track and a large portion of the revenue will be recognised in FYJune11.
* YoY, net margin is still intact at 15% on the back of higher revenue. Ebitda margin was slightly higher to 23% from 22% in FY09. This is due to higher progress billings during the year which the revenue increased by 26%.
* QoQ, 15% higher in revenue accounts for Khazanah’s unit project. The fast track shrimp project for Khazanah subsidiary project in Terengganu has kicked in 3Q10 revenue. The project is expected to be completed within 12 months started from Feb 2010. The Ebitda margin was slightly lower from 24% to 23% due to higher administration cost as the
management had given out bonus for its staff.
* LRT extension project will not impact earnings in the near term. We expect the order book of RM400m to be stable for the next 2 years. The management is actively bidding for more projects including the remaining LCCT contract that could be worth c. RM300m while bidding for LRT extension project. Fajarbaru jointly bid for the LRT project with Signatium Construction Sdn Bhd. However, it’s too preliminary to gauge the value of the project due to delays from SPNB. Should the contract award come in by end of 2010, the impact on Fajarbaru earnings in FY11 will be minimal.
* Property development, the natural progression. The management is actively looking for options in diversifying its income stream including property development to mitigate the slowdown in construction sector. At present, Fajarbaru has about 80ha of land in Port Dickson and it is yet to commence any development at this time and they are eyeing to acquire more strategic land in Klang Valley which have better turnover for property development. l
* Maintain BUY with TP of RM1.32 based on 10x PE FY10.
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