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Wednesday, November 18, 2009

AZRB (RM0.945) clinches RM309m PWD project

KUALA LUMPUR: AHMAD ZAKI RESOURCES BHD (AZRB) has secured a project from the Public Works Department worth RM309.37 million to build a complex along Jalan Sultan Salahuddin, Kuala Lumpur. "The works are to be completed within the period of 130 weeks, that is commencing from Dec 1, 2009 to May 28, 2012," it told Bursa Malaysia on Wednesday, Nov 18. AZRB said the project was expected to contribute positively to the AZRB group’s earnings and the net tangible assets for the financial years ending 2009 to 2012.

Source: The Edge

Commentary:

Construction & Valuation: This job award will possibly add about RM5mil earnings or 1.8sen EPS annually assuming EBIT margins of 4.5%. By imputing this job award, outstanding orderbook stands at about RM1.2bil to last for more than 2 years. Assuming construction revenue of RM600mil annually for the next two years and EBIT margins of 5%, construction EBIT should be at RM30mil. Its bunkering service should provide another RM14mil in addition to EPIC's earnings contribution of about RM8-10mil. Total EBIT will be about RM52mil-54mil. Minus interest expense of RM14mil and taxes of about RM10mil, net profit should be around RM30mil for FY2010-11. EPS will be about 10.8 sen while PER 2010-11 will be at 8.8x, reasonably cheap in my opinion, considering the potential small-mid size job awards from government pump priming, revived construction margins (It was hard hit in 2008 from high construction material costs, resulting in 29% y-o-y decrease in earnings) and potential earnings contribution from its plantation venture starting 2010. Note that the earnings forecasts above have not imputed possible earnings contribution from its plantation business.

Plantation Business: The more exciting part will be its plantation business in Indonesia with plantation land area of 20.5K Ha. Earnings contribution from this division should come in 2010-2011 as they started planting since end of 2007. Based on 20.5K ha, assuming FFB (Fresh Fruit Bunch) yield of 20MT/Ha/year, OER (Oil Extraction Rate) of 20% and planted area of 75%, plantation could potentially yield 61.5K MT of CPO (Crude Palm Oil) a year or revenue of about RM150mil at RM2,400/MT CPO price. Assuming 10% net margin, net earnings could reach RM15mil or 5.4sen EPS, potentially boosting its total EPS to 16.2 sen by 2011. Having said that, the risk of investing in a business unrelated to their construction line of business should be of concern. Hopefully they'll be able to manage it well and not end up with the same fate as Tradewinds Plantation and Kulim whose venture into Indonesia plantation turned out unsuccessful. Wait and see.

Share Price: RM0.945
Shares Issued: 276.64mil
Market Cap: RM261.4mil
Net Profit for 2010 & 2011: Approx RM30mil
EPS: 10.8sen
PER 2010-2011: 8.8x
Share Price Triggers: Project awards, stronger quarterly earnings, earnings growth from its plantation business.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

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