AZRB (RM0.945) clinches RM309m PWD project

KUALA LUMPUR: AHMAD ZAKI RESOURCES BHD (AZRB) has secured a project from the Public Works Department worth RM309.37 million to build a complex along Jalan Sultan Salahuddin, Kuala Lumpur. "The works are to be completed within the period of 130 weeks, that is commencing from Dec 1, 2009 to May 28, 2012," it told Bursa Malaysia on Wednesday, Nov 18. AZRB said the project was expected to contribute positively to the AZRB group’s earnings and the net tangible assets for the financial years ending 2009 to 2012.

Source: The Edge

Commentary:

Construction & Valuation: This job award will possibly add about RM5mil earnings or 1.8sen EPS annually assuming EBIT margins of 4.5%. By imputing this job award, outstanding orderbook stands at about RM1.2bil to last for more than 2 years. Assuming construction revenue of RM600mil annually for the next two years and EBIT margins of 5%, construction EBIT should be at RM30mil. Its bunkering service should provide another RM14mil in addition to EPIC's earnings contribution of about RM8-10mil. Total EBIT will be about RM52mil-54mil. Minus interest expense of RM14mil and taxes of about RM10mil, net profit should be around RM30mil for FY2010-11. EPS will be about 10.8 sen while PER 2010-11 will be at 8.8x, reasonably cheap in my opinion, considering the potential small-mid size job awards from government pump priming, revived construction margins (It was hard hit in 2008 from high construction material costs, resulting in 29% y-o-y decrease in earnings) and potential earnings contribution from its plantation venture starting 2010. Note that the earnings forecasts above have not imputed possible earnings contribution from its plantation business.

Plantation Business: The more exciting part will be its plantation business in Indonesia with plantation land area of 20.5K Ha. Earnings contribution from this division should come in 2010-2011 as they started planting since end of 2007. Based on 20.5K ha, assuming FFB (Fresh Fruit Bunch) yield of 20MT/Ha/year, OER (Oil Extraction Rate) of 20% and planted area of 75%, plantation could potentially yield 61.5K MT of CPO (Crude Palm Oil) a year or revenue of about RM150mil at RM2,400/MT CPO price. Assuming 10% net margin, net earnings could reach RM15mil or 5.4sen EPS, potentially boosting its total EPS to 16.2 sen by 2011. Having said that, the risk of investing in a business unrelated to their construction line of business should be of concern. Hopefully they'll be able to manage it well and not end up with the same fate as Tradewinds Plantation and Kulim whose venture into Indonesia plantation turned out unsuccessful. Wait and see.

Share Price: RM0.945

Shares Issued: 276.64mil

Market Cap: RM261.4mil

Net Profit for 2010 & 2011: Approx RM30mil

EPS: 10.8sen

PER 2010-2011: 8.8x

Share Price Triggers: Project awards, stronger quarterly earnings, earnings growth from its plantation business.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Naim’s (RM2.95) 3Q profit up 44% to RM21m

Naim Holdings Bhd posted a 44% rise in net profit to RM21.4 million in its third quarter (3Q) ended Sept 30, 2009 from RM14.88 million a year earlier on the back of a 10.8% rise in revenue to RM144.46 million from RM130.33 million. Basic earnings per share (EPS) rose to 9.02 sen from 6.11 sen. It had on Sept 15, 2009 paid a first interim single-tier dividend of three sen per share. For the nine months to Sept 30, 2009, net profit rose 11.6% to RM59.89 million from RM53.66 million a year earlier, while revenue fell 1.7% to RM374.11 million from RM380.59 million. EPS rose to 25.26 sen from 22.04 sen.

Source: The Edge

Commentary:

A good counter to get exposure into the Sarawak construction sector. Current outstanding construction orderbook is approximately RM820mil which could last them for more than 2 years (Construction revenue is about RM300mil p.a. while property development revenue is approximately RM200mil). A strong contender for Sarawak projects.

Construction Orderbook: Naim is currently holding RM1.3bil (Could be revised up to RM2bil) LOI (Letter of Intent) for Kuching flood mitigation project of which Naim holds 50%, to be implemented over 10MP. This will translate into RM130mil p.a. revenue for Naim over the next 5 years. To recap, Naim has been awarded Phase 1 of this project worth RM149mil and works are still ongoing. This will further increase the likelihood of the following phases being awarded to Naim. Naim is also aiming for supply and installation of college equipment project worth RM100mil which is still at LOI stage, possibly converting into award in 3Q2010. Naim managed to secure about RM257mil worth of jobs YTD and possibly could replenish around RM400mil p.a. in 2010-2011 given the government's effort to speed up infrastructure projects in Sarawak ahead of Sarawak's state election somewhere in 2011. In addition, Naim is also offered a project to rehabilitate Fiji's national highway worth US$100mil (RM345mil). Nonetheless, it has not yet accepted the offer pending several issues to be ironed out.

Valuation: Valuation remains attractive. Net profit expected to exceed RM80mil in 2009 and could reach even RM95-100mil in 2010 backed by improving property sales in tandem with economic recovery, strong construction margins and potential awards from Fiji and SCORE (Sarawak Corridor of Renewable Energy). Earnings are further supported by its stake in Dayang which contributes more than RM20mil of earnings annually. EPS for 2009 and 2010 should be at least 32 sen and 38 sen respectively (Excluding earnings contribution from Borcos), translating into PER 2009 and PER 2010 of 9.2x and 7.7x respectively. On top of that, Naim's 36% associate company, Dayang also recently acquired 40% stake in Borcos which could contribute earnings of about RM9mil or 3.6 sen per share annually.

Assuming EPS 2010 of 41.6 sen (38 sen + 3.6 sen), share price should be above RM4.00 just by attaching PER of 10x. Share price should surge on more awards of projects, brighter property market outlook and stronger quarterly results performance.

Shares issued: 250mil

Market Cap: RM737.5mil

Net Gearing: 16%

Div Yield: 2.5%

Share Price: RM2.95

Revenue 2009 & 2010: RM530mil, RM650mil

Net Profit 2009 & 2010: RM80mil, ~RM100mil

PER 2009 & 2010: 9.2x & 7.1x

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

NSTP (RM2.40) Privatization: Revised Offer

• Better swap ratio of 1.2 Media share for every 1 NSTP share.
• NSTP dividend of 40 sen to be paid on 7th Dec 2009.
• 1 free Media Prima's warrant for every 5 offer shares accepted.

Therefore, NSTP shares should be valued at:

RM2.40 + 40 sen dividend + 10 sen implied dividend = RM2.90

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.