We project BNASTRA’s upcoming 3QFY25 results to deliver earnings in the range of RM25mn-RM27mn, underpinned by its robust order book expansion in FY24-25. To recap, the key takeaways from the previous quarter’s result briefing outlined the following: (i) stronger order book growth prospects, (ii) an expanding labour force and sub-contractor pool, and (iii) a slight margin contraction. Correspondingly, we adjusted our FY26/27F earnings estimates upward by 7.3% and 1.8%, respectively. As a result, our target price is raised from RM2.10 to RM2.25, premised on 18x CY25 EPS. Maintain Buy call on the stock.

Result Preview

BNASTRA is anticipated to release its 3QFY25 results around mid-month. According to our projections, quarterly profits are expected to range between RM25mn to RM27mn, bringing its cumulative 9MFY25 earnings to approximately RM65.9mn – RM67.9mn. This represents 70% – 75% of our fullyear forecasts. We attribute the anticipated YoY and QoQ earnings growth to consistent progress billings from its current unbilled order book of RM3.7bn.

Stronger Order Book Growth Prospects

As guided in the previous results briefing for 2QFY25, BNASTRA is actively pursuing opportunities to expand its business presence in Johor state, driven by growing demand for housing properties in the southern region. This effort is evidenced by the establishment of a new branch office in the Johor Bahru area, which is anticipated to be completed and operational by February 2025. Notably, BNASTRA has secured RM3.1bn in new job wins YTD in FY25. Looking ahead, we anticipate that its new job replenishment in FY26 could potentially surpass its FY25 achievement, propelled by a resilient project launch outlook from its key clients across Klang Valley, Johor Bahru (Johor) and Kota Kinabalu (Sabah) regions, with a combined gross development value of up to RM10bn per annum, as highlighted in our initiation report dated 16 October 2024. This sustained growth in BNASTRA’s order book is expected to ensure earnings stability and visibility for the next five years, further strengthening the group’s position in the market.

Expanding Labour Force and Sub-contractor Pool

To accommodate its growing order book and maintain punctuality in project deliveries, BNASTRA is poised to expand both its workforce and subcontractor pool in the near term. Currently, the group employs approximately 3,500 – 4,000 workers, including its sub-contractor teams. With anticipated progress on ongoing projects and expected new job inflows, BNASTRA is likely to further increase its labour force by FY27 to ensure the timely and efficient execution of its construction projects.

Margins Experience Slight Contraction

BNASTRA has consistently maintained a solid net margin, typically ranging between 10% – 11%, which remains one of its key strengths. However, the planned expansion of its labour force is expected to drive up operating costs, exerting additional pressure on project margins. Notably, BNASTRA’s net margin has remained in the high single digits since FY23, primarily due to increased input costs and adjustments to minimum wages.

Looking ahead, while new projects with improved margins are in the pipeline, the labour force expansion is likely to delay a full recovery in net margins. As a result, the group’s net margin is projected to moderate to approximately 8% in the medium term. That said, this projected lower margin remains well above the industry average of 4.5% to 5.5%, highlighting its operational efficiency.

Forecast

Given the robust order book outlook, we revised our new job replenishment assumptions, previously set at RM2.5bn for both FY26 and FY27, upward to RM3.5bn and RM3bn, respectively. Additionally, we adjusted our progress billing and project margin assumptions for certain construction projects. As a result, our FY26 and FY27 earnings estimates have been revised upward by 7.3% and 1.8%, respectively.

Valuation

After the earnings revision, we raise the target price to RM2.25 from RM2.10, based on 18x CY25 EPS. Our bullish outlook on BINASTRA remains underpinned by the following: (i) its strong and enduring relationships with key clientele, (ii) its position as a key beneficiary of the property sector’s growth momentum, (iii) solid earnings visibility supported by a resilient orderbook, and (iv) robust earnings growth propelled by continued expansion of its orderbook. Maintain Buy recommendation on the stock.

Source: TA Research - 5 Dec 2024