News    Fajarbaru announced that it had been notified by MESB, which is a wholly-owned subsidiary of MRCB, that the latter had cancelled the previous sub-contract award for the Ampang LRT extension project worth RM289m to the company. 

 This came about as the contract had been taken over by Prasarana from MESB, where the former had also assumed the liability and cost for the package (project). Prasarana has now reawarded the contract back to Fajarbaru. 

 The contract scope is mainly for the construction and commission of depot works in Kuala Sungai Baru.

Comments   To recap, the contract was initially awarded to Fajarbaru by MRCB Engineering Sdn Bhd (MESB) back in May-12. However, MESB has now terminated the contract with Fajarbaru as highlighted above. 

 We are neutral on this news as we have already imputed in the project in our earnings forecasts. However, this news could be a slight positive to Fajarbaru as we expect the contract to now carry a better margin for the company due to it being on the main contractor status now. On top of that, based on its track record, one of the key advantages for Fajarbaru is that is has ability to help Prasarana directly in realising cost and time benefits for the project via proposed alternative designs, which should enhance the project's margin.  

Outlook   Fajarbaru's outstanding order book currently stands at c.RM800m, which will provide it earnings visibility for the next three years. Moving into FY14, we believe that Fajarbaru will be able to go on full swing in executing its outstanding order book of c.RM800m.

Forecast   There are no changes in our earnings estimates. 

Rating     Maintain UNDERPERFORM

 We are maintaining our UNDERPERFORM recommendation on Fajarbaru as we believe that the recovery for Fajarbaru will remain slow in FY13 due to its site possession issues.

Valuation    No changes to our TP of RM0.51, based on 5.0x

PER on its FY14E EPS.  

Risks   Delay in LRT works by the main contractors.

 Escalating building material prices.

Source: Kenanga