Wednesday July 4, 2012
Construction jobs flow to continue
By OSK Research
THE second quarter of 2012 (Q2'12) saw domestic contracts totalling RM5.1bil from jobs from the Klang Valley Mass Rapid Transit Sungai Buloh-Kajang (MRT SBK) line rolling out progressively.
Currently about 77% of the entire track have been awarded out.
We see this fuelling the jobs flow for the remainder of this year, partly boosted by the potential award of the Gemas-Johor Baru electrified double tracking (EDT) project, West Coast Expressway (WCE), as well as Kuala Lumpur Outer Ring Road (KLORR).
We maintain “overweight” on the sector as the flow of contracts to be awarded in the next few months will continue to drive the sector.
The total value of contracts awarded in Q2'12 totalled RM5.4bil, an increase of more than 100% year-on-year. This was boosted by the handing out of packages relating to the KV MRT SBK line.
However, this was down by some 66% quarter-on-quarter as the single largest package in the SBK line, which was the RM8.2bil underground portion was awarded in the previous quarter.
These comprise RM5.1bil in local jobs, with the SBK line making up a sizeable RM3.8bil.
Foreign contracts, on the other hand, contributed the remaining RM313mil. Excluding the SBK line-related jobs, the local jobs amounted to RM1.3bil, a 30.5% decrease year-on-year and 54.7% quarter-on-quarter.
This was due to jobs relating to the Tanjung Bin power plant extension being awarded in Q1'12, as well as a lumpy RM667mil rural water supply project in Sarawak in Q2'11.
Cumulating the two quarters, the first half of 2012 (H1'12) jobs secured by public-listed contractors amounted to RM18.1bil, trumping the total of RM4.8bil registered in H1'11, as contracts from the SBK line continued to be dished out.
Bursa-listed contractors bagged projects worth about RM14bil during this period.
We understand that Gamuda as the joint caretaker of the MRT SBK line together with MMC, 77% of the entire project worth RM20bil has been awarded to public-listed and private contractors, the latest being the V2 and V3 viaduct packages secured by Gadang and Mudajaya on June 29.
We believe the momentum will be sustained in H2'12 as it will continue to be driven by the MRT SBK line.
MMC-Gamuda has called for tenders for 20 packages relating to the remaining viaduct package V8 (Taman Mesra-Kajang), with four out of the eight station packages likely to be awarded in Q3'12.
We expect most of the jobs in respect of the SBK line's outstanding jobs worth RM4.5bil to be awarded by year-end.
Meanwhile, we also expect more news on the 1,400MW gas-fired Prai Power Plant, for which the Energy Commission has shortlisted nine consortiums as potential independent power producers, as well as jobs in the Sarawak Corridor of Renewable Energy (SCORE).
With the 13th general election likely to be held only in late-Q3'12 after the Hari Raya festive season in August, we expect that the ruling Barisan Nasional (BN) coalition will continue to create “feel good” factors to shore up its popularity.
We think this could potentially accelerate the implementation of the country's mega-billion construction projects, especially in SCORE, as we expect the ruling coalition to use contracts to anchor votes from Sabah and Sarawak, whose parliamentary seats make up 54 of the BN's 140 nationwide.
Year-to-date, the number of jobs awarded in Sarawak have almost halved from RM696mil in H1'11 to RM359mil in H1'12. We believe there is a possibility of the Federal Government ramping up its development expenditure for the country's largest state in H2 this year.
While there are some concerns over the possibility of the contracts flow drying up in H2'12, especially post-election, we remain relatively bullish in anticipation of developments relating to the RM7bil WCE and the RM8bil Gemas-Johor Baru EDT project, which, according to Gamuda, is likely to be awarded by Q3'12.
Apart from that, the RM1.7bil KLORR may potentially be revived as we gather from sources that AZRB is close to finalising the concession agreement.
Moving into 2013, we understand that some of the major projects include the RM1.5bil Kinrara-Damansara highway and underground portion of the MRT Line 2 and Line 3, of which the award will likely materialise in H2'13.
With the 17 eurozone countries, including Germany, having agreed to allow countries that have made economic reforms as required by the EU authorities to tap into the European rescue funds without submitting to stringent bailout programmes, we believe the global equity markets may finally come out of the woods and head for new highs this year.
Target price: RM4.30
WE re-affirm our high conviction “buy” on MBM Resources Bhd (MBM) with a higher fair value of RM4.30 per share versus RM3.60 per share previously.
Our sum-of-parts valuation now pegs Perodua at 12 times its financial year ending Dec 31, 2012 (FY12) forecasted earnings versus 10 times previously, to reflect its strong earnings traction, underpinned by a strong total industry volume (TIV) rebound in the recently-announced May numbers.
We raise the FY12 till FY14 forecasted earnings of between 7% to 9% based on higher revenue per car set for parts supplies and higher volume target for Proton Preve; execution of compulsory airbag fitment in second half of 2012 (H2'12); increase in Volvo sales from H2'12 onwards. Our projections are now between 4% and 5% higher than consensus and an upward earnings revision is a key re-rating catalyst in the near-term.
Proton Preve, which was launched earlier in April, has generated over 11,000 units in bookings. This is a rapid improvement versus 4,893 bookings in April and far exceeding Proton's monthly sales target of 4,500 units.
On top of strong volumes, parts supplies to the Preve entail a much higher value of RM1,100 per car versus a typical RM800 per car given a higher airbag content.
This should drive an earnings gap up for Hirotako from Q2'12 onwards.
Additionally, the compulsory dual airbag fitment, which was delayed due to negotiations between auto makers and regulators, is finally taking off in H2'12.
Key models that will drive airbag take-up are Perodua Alza and Proton Saga. These are high volume models accounting for 22% and 48% of Perodua and Proton's total volumes, respectively.
Currently, bookings for Perodua stand between 18,000 and 19,000, the bulk comprising the MyVi.
Marketing efforts have shifted to the MyVi which entails a better loan approval rate.
May TIV saw Perodua's shift in strategy bearing fruit, with volumes rising 20% month-on-month.
The rising volumes will be accompanied by margin improvement given a better model mix and stronger margins commanded by the new MyVi.
We see room for earnings revisions for Perodua in the coming months.
Key catalysts for MBM are consensus earnings revisions; newsflows on expansion into vehicle assembly picking up in the next six months; stronger-than-expected auto sales recovery; potential introduction of new models by Perodua; an undervalued stake in Perodua; and potential mergers and acquisitions.
MBM is now positioned as a proxy to recovering Proton and Perodua sales.
Target Price: RM3.61
WE are initiating coverage on BIMB Holdings, Malaysia's only listed pure Islamic banking play.
We believe the group has excellent earnings prospects, thanks in part to its Takaful subsidiary.
Another catalyst is the possible venture into the underpenetrated Indonesian market. We value BIMB at a 10% discount to its dividend discount model value (14.4% cost of equity, 9.5% interim growth and 5% longterm growth).
We initiate coverage on the stock with an “outperform” rating given its strong growth prospects.
We project brisk net profit growth of 33.5% in financial year ending Dec 31, 2012 (FY12) and 16%-17% in FY13-14.
This would be underpinned by a forecast three-year compound annual growth rate (CAGR) of 15.8% for non-fee based income for FY12-14, and anticipated loan growth of 15.8% in 2012, and 11%-12% in 2013-2014.
Its net financing margin could also expand as a result of an increase in the loan-todeposit ratio from only 50% in 2011.
BIMB is in the midst of negotiations to acquire Bank Muamalat Indonesia.
If this materialises, it will enable BIMB to establish a foothold in the underpenetrated Indonesian financial market, which enjoys loan growth of around 20% and a net financing margin of more than 5%.
Previously, BIMB was afflicted with weak loan growth and the highest non-performing loan ratio among the local banks.
However, we have seen significant improvements in the group over the past three to five years. In fact, its organic loan growth was the fastest and its gross impaired loan ratio the third-lowest among the local banks in March 2012.
BIMB has shown significant improvements in the following areas over the past two years: firstly, a fall in its gross impaired loan ratio from 12.7% in 2009 to 2.6% in 2011; secondly, a surge in loan growth from 2.5% to 18.6%, and, thirdly, a jump in return on equity from 3.1% to 15%.
Bank Islam Malaysia is the third-largest Islamic bank in Malaysia with total assets worth RM29.9bil as at end-December 2011.
BIMB recorded a net profit of RM203.3mil in FY12/11, representing 32.1% growth from the annualised FY12/10, which covers an 18-month period due to a change in financial year-end from June to December.
The growth was achieved on the back of an 18.5% expansion in total operating revenue to RM1.56bil in FY11.
At the topline, the banking operations contributed about 77.7% of operating revenue while 16.9% came from the takaful business.
Likewise at the bottomline, the banking business was the biggest contributor, accounting for 70% of the group's FY11 profit before tax versus 15% for takaful.
The significant improvements in the financial performance in the past three to five years reflect the quality of the management, especially for Bank Islam.
Bank Islam is helmed by Datuk Seri Zukri Samat, who was appointed as the managing director on June 9, 2006. Banking statistics show that the Islamic banking segment is growing faster than the banking system as a whole. BIMB is the only listed Islamic bank in Malaysia while the Islamic banking business only accounts for more than 20% of other listed banking groups' top- and bottomlines.
The group has a dividend policy of 50% payout.
Based on this, we project net dividend per share of 13sen-15sen in FY12-13, translating into a decent net yield of 4%-5%.
Valuation-wise, BIMB's FY13 price-toearnings (P/E) of 10.4 times is higher than the 10.1times for the sector albeit below the 11.2 times for Maybank and Hong Leong Bank.
However, the above-sector P/E valuation is supported by its strong net earnings growth with a projected CAGR of 21.8% in the next three years.
Its end-2012 price-to-book value of 1.66 times is below the 1.72 times for the sector while its net dividend yield of 4.1% is on par with the sector's.