MRT2 CONTRACT ANNOUNCED ON 9 MARCH 2017

1.  7-14 Days prior announcement - 1.10

2.  Few days after announcement  - 1.23 to 1.31

3.  Today 24 March 2017                 - 1.27

4.  Basically, after the announcement till today, price has increased 17 sen x 649m shares = RM110m

5.  Contract for MRT2 is RM952m, based on track record, 10% PAT is achievable = RM95.2m for 4 years project.

6.  Profit contribution from MRT2 is about RM23.8m x PE12x = RM286m

7.  Upside still have about RM286m less RM110m = RM176m  or 27 sen to go.

8.  Hence, the new TP is RM1.54 (RM1.27 + 0.27) which is quite closed to RHB's TP1.55

HOW MUCH RHB VALUED ITS UTILITY & PLANTATION

1.  Water - RM27m + Hydro - RM5m + Plantation - RM42m = RM74m

2.  Plantation comparison - Innoprice has 11,000 ha and market cap is RM565m.  Average price = RM51,000 per ha.

3.  Small plantation EV/ha = RM30,000 to RM50,000.  Using average of RM40,000 per ha, Gadang plantation should be about RM80m.

4.  As for Water & Hydro, Gadang has invested around RM60-70m for their equity portion.  (For reference only, SILK toll road, invested equity is RM160m, PNB bought it recently for RM380m.  SILK was loss making for last 15 years, NPV/Equity invested = 2.375x).  For Gadang, it is very conservative to use 2.5X multiple.  Hence, the NPV should worth about RM162m.

5.  Hence, for Water & Hydro (RHB's value is RM32m), market is given about 2.5X of invested equity, it should worth RM162m. Upside another about RM130m.

6.  Total additional upside is about RM170m, with 649m = 26 sen.

7.  As usual, valuation should always be conservative.  Let's give it a discount of 20%, hence upside is 21 sen.

SO, IS THE NEW VALUATION REASONABLE?

1.  Adjusted TP is RM1.75 (1.54 + 0.21) to RM1.80 per share.

2.  Based on today's closing at RM1.27, upside is 38% to 42%.

3.  Gadang's tender outstanding still have about RM4 billion.  There is only about 2 months left for FY2017.  Will it get another contract?

4.  Although management's guide to analysts is RM500m contract per annum.  Based on discussion with my fund manager, they are not surprise if they can get RM1.0 billion contract (as some of their tender is pre-selected tender).  Well they have another 12-15 months again to attain it.  Hope this round they do not wait until end of FY18.

5. Don't count the chicks before it hatches, but can "hope" for another 20sen upside.

6. With MRT2 contract, profit of RM110m is in the bag (next one two years).  PE10x, market cap it about RM1.1b, or RM1.70 per share.  With ANOTHER CONTRACT(S) of RM600-800m within the next 12 months, RM1.90 to RM2.00 is attainable.  (Haven't even include upside from Kwasa Land, Puchong land, Damansara Perdana Land and Solar Energy in Sabah)

7. (28.3.17) Capital City, about RM200m cash profit not recognised.  Give it 4 years for recognition (conservative), Capital City contribution p.a. is RM50m p.a. (not including others property development).  Recognition may be bulky, it will surprise many.  Perhaps next quarter may be low/none, the next one will be huge (new FRS recognition on construction).  PE of 8x, Capital City alone is worth RM400m.

8. (31.3.17) With RM1.5b order book or even RM2.2b orderbook (within next 12 months) + Future Kwasa Land/Puchong Land/Damansara Perdana Land/Semenyih Land + underestimated Capital City recognition + Utility + Plantation, it is not suprice the CAGR for next 5 years will be low DOUBLE DIGITS.  Profits will grow to about RM150-180m p.a.

DISCLAIMER

This is not a buy, sell or hold call.   Gadang's share price, will goes up and down, Alibaba came, and he left.  Some makes tonnes of money, some donated tonnes to them.  As long as we don't play with fire, we can avoid being burnt.

WHAT ABOUT CENTURY LOGISTICS?

1.  Some friends asked, at 99 sen today, boleh kah?

2.  Disregard the price volatility during Jack Ma's visit on logistics and technology companies, Century's fundamental is very average.

3. Plus point is they pay about 3% dividend.

4. Just a quick review, and after reading some "bones" report, Century's catalysts for growth is interesting:

(i)  New multi-level warehouse in Klang is ready soon.  Century has invested about RM50m (if not mistaken) in the warehouse

(ii) Management announced that they will leverage on CJKE expertise in their latest quarterly result.

5.  Let's see what CJKE can offer. One of the TV series I watched, it says "Success equals to desire in action".  CJKE intention to expand in SEA is, one, buy Century Logistics, two, partner with Lazada, three, find a big warehouse, four, start a......a.......a...B2C?  I am not an expert in logistics, I leave it to CJKE.

Extracted from SJSOON blog

Property Division

FY2016 Turnover: RM 172.02 Million; PBT: RM 52.93 Million (PBT Margin: 30.77%)

Ongoing Development Porjects:

The Vyne: RM 540 Million

Pokok Sena: RM 256 Million

Capital City: RM 2186 Million

Laman View: RM 1528 Million (Phase 1 completed, Phase 2 starts soon)

Future Development Projects:

KWASA Land: RM 700 Million

Semenyih Land (Rumah Selangorku): RM 470 Million 

Melawati Land: RM 365 Million

So far the unbilled sales for on-going projects record RM 220 Million which is 1.27 times FY 2016 revenue. 

BEHIND THE ENVELOPE CALCULATION

A.  On Going Projects = RM3.8b x 22% = RM836m

B.  Capital City = PAT not recgonised = RM180m

C. New Projects Puchong+ Perdana = RM800m x 22% = RM176m

D.  Total = 836 + 180 + 176 = RM1,192 x 70% discounting (10 years) = RM834m

SUM OF PARTS (22 April 2017)

PROPERTY = RM800M

CONSTRUCTION = RM1.6B X 11% X DIVIDED BY 4 YEARS X PE12 = RM528M

UTILITY + PLANTATION = RM200M

TOTAL = 800 + 538 + 200 = RM1,538 / 654 = RM2.35 per share.