News

• Wins building job. Pesona announced that it has been awarded a RM161.9m contract by Sime Darby Property for the SJCC development in SS16 Subang Jaya. The job scope is for a 30-storey service apartment consisting of 2 blocks of 20-storey residential tower (361 units), facilities, 3 levels of commercial units and carparks to be competed over a period of 39 months (by April 2021).

Comments

• First job win after a quiet 2017. This contract is Pesona’s first job win for FY18 which also comes after a quiet FY17. To recap, Pesona did not secure any new jobs for FY17 as it lost out on 3 building jobs that it tendered for as the margins were too low for comfort. Assuming a burn rate of RM150m in 4QFY17 and after including this recent contract, we estimate its orderbook to now stand at RM1.6bn. This translates to a cover of 4.3x on FY16 construction revenue.
• What’s next? Looking ahead, in terms of potential job wins, Pesona is targeting for several building type jobs in the tune of >RM500m. This includes hospitals, government facilities, condos and affordable housing. There could also be job flow potential from its sister-co, Juta Asia (unlisted) via upcoming new property developments.
• SEP acquisition concluded. Pesona’s acquisition of its 1st tranche (70% stake) in SEP (concessionaire of UNIMAP hostel) was completed in end-Sept 2017. As such, 4Q should begin to see contribution from UNIMAP which we estimate will amount to RM2m. The 2nd tranche acquisition (balance 30% stake) is targeted for completion by March 2018.

Risks

• Low orderbook replenishment.

Forecasts

• Unchanged as we have already penned in RM500m worth of new jobs for FY18.

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Maintain BUY, TP: RM0.70

• Pesona offers investors exposure to a pure construction play with an incoming stream of recurring earnings. Its financials are solid with strong earnings growth (3-year CAGR: 27%) and increasing ROE (FY18: 22%).

Valuation

• Our fully diluted SOP based TP of RM0.70 implies FY18-19 P/E of 13.6x and 11.9x, respectively.

Source: Hong Leong Investment Bank Research - 29 Jan 2018