Secures Superstructure Works from MRCB

PESONA has accepted a construction job from MRCB Builders Sdn Bhd for the construction of superstructure works for a mixed development in Kuala Lumpur, for a contract sum of RM408.8mn. The project has a construction period of 30.5 months, commencing on 18 February 2019.

Mutual Termination for the Construction of Civil Works for Section 6 of West Coast Expressway (WCE)

Separately, Pembinaan Kaleigh Sdn Bhd – Pesona Metro Sdn Bhd JV has entered into a mutual termination agreement for the above work package. Recall, the JV accepted the award for the above works, with a contract sum of RM371.4mn, from the main contractor, a JV of Konsortium Kontraktor Melayu Sdn Bhd – Pembinaan Kaleigh Sdn Bhd on 9 September 2016.

Our View

Assuming a net margin of 4%, we expect the new job from MRCB to contribute a net profit of RM16.4mn, or EPS of 2.4sen/share throughout the construction period. On a separate note, we believe the mutual termination arises from a prolonged delay in land acquisition, which resulted in a delay in handing over of site possession to the contractor to commence works on the majority stretch of the work package. We are neutral on the mutual termination. While PESONA foregoes the order book, it releases the company from the burden of idling costs, and potential contractual dispute which may arise from the prolonged delay. Its outstanding order book is estimated at RM2.0bn.

Impact

We raise FY19 and FY20 earnings forecasts by 8.1% and 15.1% respectively, after taking the following into consideration:

i) The new job win of RM408.8mn;

ii) Omission of WCE Section 6 work package, estimated at RM340mn;

iii) Adjustment to the total job wins for FY18 to reflect the actual amount of RM919mn; and

iv) Upward adjustment in FY19 order book replenishment assumption from RM400mn to RM600mn after the new job from MRCB exceeded our previous assumption.

Valuation

Following the earnings adjustment, we raise the target price from RM0.28 to RM0.29, based on sum-of-parts valuation. Maintain BUY.

Source: TA Research - 20 Feb 2019