News

• Secures MRT2 subcontract. Edgenta’s wholly owned subsidiary, PROPEL has been awarded a RM87m subcontract from Ahmad Zaki (non-rated) for the relocation of telecommunication works in relation to the MRT2 (Package V202: Persiaran Dagang to Jinjang). The contract duration is for 17 months (completion in Jan 2018).

Comments

• As per guidance. This job win is not entirely surprising as management previously guided that it is looking to undertake utilities relocation works for both the MRT2 and LRT3. The job scope for this contract is pretty much within PROPEL’s expertise which currently centres on a wide array of highway maintenance works, including utilities relocation.

• Relatively small contract. The contract sum is considered to be a mid-sized one for PROPEL at 10% of its FY15 revenue. However, in the bigger scheme of things, the contract value is only 3% of the enlarged Edgenta group revenue. The annual impact for FY16-18 would be even smaller as the job is spread over 17 months.

• Potential for more of such jobs. We believe that there is potential for PROPEL to secure more of such utility relocation contracts. The MRT2 has thus far seen the award of 4 viaduct packages with the remaining 6 to be dished out from now until 1Q17. As for the LRT3, we understand that there will be a total of 10-12 viaduct packages. PROPEL’s potential participation in the utility relocation works will be via subcontracted portions from these main viaduct packages.

Risks

• Risks associated with this contract is relatively minimal is it is within PROPEL’s usual work scope.

Forecasts

• Our earnings forecast are unchanged as the impact from the contract is relatively insignificant.

Rating

• Maintain HOLD, TP: RM3.87
• Whilst we like Edgenta’s cash flow generating capabilities, the lack of upside catalysts coupled with further impairment risks form Opus Stewart Weir prompts us retain our HOLD rating.

Valuation

• Our SOP based TP of RM3.87 implies FY16-17 P/E of 17x and 14.6x respectively.

Source: Hong Leong Investment Bank Research - 15 Aug 2016