Fajar ... Nov10

KENANGA RESEARCH

- 3M11 net profit of RM4.2m came in line with our expectations and consensus at 14% and 15%, respectively. The net profit jumped by 21% to RM4.2m on the back of 30% reduced in revenue. A strong start for FY11 was mainly due to higher net margin from recently secured projects like double track railway project (southern) and Tampin Hospital project. However, the drop in revenue was attributed to lower progressive billings as most of the projects have been completed in FY10.

- YoY, net profit jumps 21% on lucrative net margin. Despite of drop in revenue, the net profit jumped 21% on the back of improving net margin at 15% as compared to 12%,YoY from the new project secured ie: Tampin Hospital, double track railway and shrimp project in Terengganu.

- QoQ, slower revenue by 37%. The net profit was lower by 60% due to slower progressive billings during the quarter coupled with higher building material cost and the bad debts written back during the preceding quarter. Fajarbaru balance sheet remains healthy with net cash position at 75sen per share.

- Order book worth c. RM350m until FY12. Following the recent project award in the ECER region, we expect Fajarbaru to benefit from the next construction sector run up especially from the LRT extension project. We understand that the award of the project for Phase 1 which worth up to c. RM3b for Ampang and Kelana Jaya Line is expected by end of the year. The management has also indicated that Fajarbaru is bidding for construction for LRT railway track worth RM2b.

- Maintain BUY with unchanged TP at RM1.51. No change to our earnings forecast for FY11 and FY12. We like Fajarbaru as one of our top pick in construction due to its favourable deliverables in terms of margin and as one of the beneficiary for the promising construction outlook in CY11 while trading at only 7.4x PE compared to its peers of 10x.