News   Fajarbaru announced that it had received a contract letter of acceptance worth RM13.7m from Malaysia  Airport  Holdings  (MAHB)  to  supply Visual Docking Guidance System (VDGS) to MAHB for KLIA2, which includes the works of installation, testing,  and commissioning of the system.

Comments  The contract will be completed in 11 months time and a big chunk of the contract value will be recognised in FY13 earnings.

Assuming a 6% pre-tax margin, the contract will contribute RM0.6m to our FY12E and FY13 earnings estimates.  

We are neutral on the news as the contract size of RM13.7m is insignificant to our FY12E estimate. 

Outlook  Fajar's outstanding order book currently stands at RM900m, which will provide earnings visibility up  to  FY15.  We  believe  that  Fajarbaru  is  still  in the running for the MRT station and depot works based on its proven track record and healthy financials. There are about eight more packages for stations (ST1 ' ST8) and one package (DPT2) for depot that have yet to be awarded. We expect these contract awards to be announced in the coming near term (3 to 6 months).

Forecast  We are maintaining our FY12E and FY13E earnings forecasts of RM15.8m and RM27.1m, respectively, given minimal earnings impact (c.2%) from the above contract.

Rating  MAINTAIN OUTPERFORM

With an upside of about 41% from the current price, we are maintaining our OUTPERFORM rating on Fajarbaru.

Valuation   No changes to our TP of RM1.27, which is based on 9.0x PER to FY13E EPS.  

Risks  Delay in LRT works by the main contractors.

Escalating building material prices.