Journey to Wealth

Fajarbaru Builder - Slow recovery, estimates and TP cut

kiasutrader
Publish date: Mon, 05 Nov 2012, 09:37 AM
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Period    1Q13/3M13

Actual vs. Expectations  The reported 1Q13 net profit of RM0.6m came in way below our expectations, accounting for only 2.0% and 2.5% of ours and the street's full-year estimates of RM27.1m and RM23.9m respectively.

Dividends   No dividend was declared during this quarter as expected.

Key Results Highlights
 YoY,  the revenue drop by 41% to RM32.4m due to the delay in site possession for the Gleneagles hospital project LRT depot works coupled with a depleting order book replenishment.  The drop in revenue has also cut the net profit by 59% to RM0.6m. The net margin was also down to 1.9% from 2.8% due to a higher operating cost. 

 QoQ,  Fajar's earnings returned to the black with a small net profit of RM0.6m as compared to a net loss of RM20.1m in the preceding quarter. This was mainly due to higher revenue recognised from delayed construction projects in the LRT project earlier as the works started to pick up pace from May 2012.

Outlook   Moving forward, while there is lower visibility in  order book replenishment in near-term, Fajar should be focusing in executing its RM850m outstanding order book, which could probably underpin its earnings visibility for another three years.

Change to Forecasts
 Nonetheless, we have slashed our FY13 earnings estimates by 59% from RM27.1m to RM11.2m as we expect its construction projects to continue their progress at a slower pace due to site possession issues. We are also not expecting any more new contract awards for FY13.

 Going into FY14, we would expect a better recovery from Fajar as we believe that Fajar would be able to go on full swing execution on its remaining orderbook of c. RM850m. Hence, we assumed a positive growth of 75% in its FY14 earnings from RM11.2m to RM19.6m.

Rating  Downgrade to UNDERPERFORM
 We are downgrading our recommendation to an UNDERPERFORM from a MARKET PERFORM as our new Target Price below is substantially below the current share price.

Valuation    We have reduced our Target Price by 28% to RM0.51 from RM0.71 after our estimates cut above and as we rolled forward our valuation from FY13 to FY14 based on an unchanged 5.0x PER pegged to its FY14E EPS. 

Risks   Delay in LRT works by the main contractors.
 Escalating building material prices

Source: Kenanga
FAJAR (7047)
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