Fajar ... Feb11

Kenanga Research

- 1H11 net profit of RM9.4m came in below our expectation and consensus. The net profit came in at 33% of our full year forecast and 35% of consensus. Nonetheless, we consider the result within our expectation at 45% should we normalised the revenue recognition from 2 main projects secured in late CY10 - earthworks for Halal Hub in Kelantan and Pahang Automotive Industrial Park. The management declared a 12%
single interim dividend or 6sen per share, which is higher than our expectation of 3sen.

- YoY, net profit marginally higher as normalising profit margin. Despite a 54%-jump in revenue, the net profit increased marginally by 3% due to completion of most lucrative contracts last year coupled with higher
building material cost recorded during the quarter. The Group’s EBITDA margin reduced from 19% to 13% while dragging its net margin lower from 14% to 9%.

- QoQ, revenue up by one fold. The significant jump in revenue was mainly due to slower revenue recognised in 1Q11. 2Q11 revenue was mainly contributed from the shrimp farm project in Kuala Terengganu, double
tracking contract and Tampin Hospital project. Despite normalising margin during the period, the net profit increased by 27%.

- Order book worth c. RM300m for the next 2 years. Following the new projects secured during late CY10 which worth close to RM100m, the Group’s order book stood at RM300m, which will provide at least 2 years earnings visibility. We understand that Fajarbaru will be able to deliver a commendable margin for a mid size contractor.

- Not to be missed in 2011. We understand that the Group’s tender book could be worth more than RM1.5b which we expect the Group to be in the frontrunner to win partial LRT extension project extension phase 2 and runway project for permanent LCCT. We expect these project awards to be announced by 2QCY11. We are overweight on the construction sector, especially those mid-size contractors. This is because any new project value ranging from RM300m to RM500m could give an enormous impact to their earnings. Maintain BUY with unchanged TP at RM1.51 pegged at 10xPE FY11, in-line with the mid cap construction average from 10x to 12x.