Edgenta’s consultancy arm, Opus has been named project management consultant (PMC) worth RM50m for Sarawak’s RM11bn Coastal Road Network and Second Trunk Road projects. We do not discount the possibility of Opus securing subsequent PMC packages. There are also opportunities for Edgenta (via PROPEL) to participate in the road pavement works and O&M post project completion. No change to forecast. Maintain BUY with higher TP of RM3.41 (from RM3.32) as we ascribe higher PE multiple for Opus to be more commensurable with its peers.

NEWSBREAK

It was reported in The Edge that Edgenta’s consultancy arm, Opus (100% owned), has been named the project management consultant (PMC) by the Sarawak government for its RM11bn Coastal Road Network and Second Trunk Roads project.

Opus was awarded the first package of the project worth RM50m, whereby it would be working with the Sarawak Public Works Department in providing overall project management and technical expertise. This includes overseeing key deliverables within the project work scope such as preliminary and detailed designs of 20 work packages ranging from the development of new roads and bridges, including 4 iconic cable-stayed bridges and pavement rehabilitation works.

Furthermore, Opus would also be overseeing upgrading works of about (i) 300km of the existing 896km of coastal roads, (ii) construction of 10 new bridges for the Coastal Road Network and (iii) construction of 232km of the Second Trunk Roads project.

HLIB’s VIEW

Positive development. We are positive on this news as it marks a step in the right direction for the group in turning around Opus’s fortunes after a disrupted FY18 on the back of GE14, which saw major infra projects being halted. However, we are not completely surprised given that management was eyeing this particular job. The estimated project management contract value is estimated to be c.1.5%-1.8% (RM165-198m) of the total work package (c.RM11bn) to be undertaken in phases over a 10 year period. We understand that the RM50m work package is for FY19 and that the potential for more jobs is high – subject to Sarawak Public Works being satisfied with Edgenta’s performance. Apart from the PMC role, we think that Edgenta could potentially participate in some of the road pavement works via PROPEL. Upon project completion, PROPEL will also have a chance to offer O&M services for the said roads (similar to its current role for the North South Expressway).

Forecast. Unchanged as this job win has already been captured via our RM75m orderbook replenishment for Opus in FY19.

Maintain BUY, TP: RM3.41. We take this opportunity to recalibrate our valuation for Opus from 10x to 15x PE which is more commensurable with her peers (HSS (not rated) currently trades at 19.5x and 16.1x FY19-20 PE). Our SOP derived TP increases to RM3.41 (from RM3.32). By virtue of Edgenta previously undertaking consultancy works for mega government infrastructure projects (LRT extension, Double Track, NSE 3rd lane widening), coupled with its majority ownership by Khazanah, we reckon that it is in pole position to secure more consultancy works for government funded infra jobs.

Source: Hong Leong Investment Bank Research - 17 Apr 2019