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PP 7767/09/2010(025354)

13 July 2010
RHB Research
Institute Sdn Bhd
Malaysia Corporate Highlights A member of the
RHB Banking Group
Company No: 233327 -M

13 July 2010
New s Upda te
MARKET DATELINE

Fajarbaru Builder Group Share Price


Fair Value
:
:
RM0.93
RM1.39
Buying Out Minority Shareholders Of Land In Port Recom : Outperform
(Maintained)
Dickson

Table 1 : Investment Statistics (FAJAR; Code: 7047) Bloomberg: FBC MK


Net FD Net
FYE Turnov Profit# EPS# Growth PER EPS# C.EPS* P/CF P/NTA ROE Gearing GDY
Jun (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (x) (%) (%) (%)
2009 184.6 18.1 15.2 56.3 6.1 - - 2.9 1.1 17.8 Cash 5.9
2010f 176.4 22.4 13.6 (10.1) 6.8 11.6 - 15.7 1.3 19.0 Cash 5.9
2011f 233.0 25.6 14.7 7.7 6.3 13.2 - 12.8 1.2 18.8 Cash 5.9
2012f 284.0 28.5 15.5 5.3 6.0 14.7 - 11.2 1.1 18.1 Cash 5.9
Main Market Listing /Non-Trustee Stock /Syariah-Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ To take full control of land in Port Dickson. Fajarbaru has proposed to Issued Capital (m shares) 166.2
buy out the minority shareholders of Potential Region Sdn Bhd (Potential Market Cap (RMm) 154.6
Region), i.e. three individuals who own a combined 49.75% in the company, Daily Trading Vol (m shs) 0.7

for RM16m cash. Currently 50.25%-owned by Fajarbaru, Potential Region 52wk Price Range (RM) 0.84-1.25
Major Shareholders: (%)
holds some 140.3 acres of freehold land in PD Homestead Resort, Off Jalan
Big Victory Holdings 13.1
Si-Rusa-Sunggala, Port Dickson, Negeri Sembilan.
Tan Sri Chai Kin Kong 7.4
♦ Fair pricing. The price tag of RM16m for the 49.75% stake in Potential Dato’ Ir Low Keng Kok 7.2
Region is fairly consistent with the minority interests of RM16.5m in
FYE Jun FY10 FY11 FY12
Fajarbaru’s balance sheet (solely from Potential Region as it is the only non-
EPS Revision (%) - - -
wholly-owned subsidiary of Fajarbaru). This means to say that the Var to Cons (%) - - -
transaction values the land effectively at its book value of RM46.2m or
RM7.55 psf, at a premium to the asking prices of RM2.40-6.05 psf in the Si- PE Band Chart
Rusa-Sunggala area in Port Dickson (see Table 2). However, we believe the
PER = 9x
premium is justifiable given that 91% of the land is already subdivided into PER = 7x
PER = 5x
orchard homestead/bungalow lots, while 3% into commercial land with the
remaining 6% carrying an agricultural land title.
♦ We are neutral on the latest development. We believe Fajarbaru’s latest
move is purely tactical, i.e. to have full control over Potential Region. We do
not believe Fajarbaru is in the hurry to relaunch this PD Homestead Resort
project, given the generally soft property market in Port Dickson. Ceteris
Relative Performance To FBM KLCI
paribus, the acquisition will reduce Fajarbaru’s net cash of RM123.7m or
74sen/share as at 31 Mar 2010 to RM107.7m or 64.8sen/share.
Fajarbaru
♦ Forecasts. Maintained as the interest income foregone on the RM16m cash
outflow will reduce FY06/11 net profit by less than 1%.
♦ Risks. The risks include: (1) New contracts secured in FY06/11-12 coming in FBM KLCI
below our target of RM250m per annum; and (2) Rising input costs.
♦ Maintain Outperform. We are positive on the construction sector as we
foresee construction stocks to generally outperform the market in 2H2010,
buoyed by news flow, particularly, from: (1) The RM36bn KL mass rapid
transit (MRT) project; (2) The RM7bn Ampang and Kelana Jaya light rail
transit (LRT) line extension project; and (3) Federal land deals. For
Fajarbaru, additional kickers will come from its still undemanding valuations
and a strong balance sheet with a net cash of RM123.7m as at 31 Mar 2010,
Joshua CY Ng
translating to a whopping 74sen/share. Indicative fair value is RM1.39 based (603) 92802151
on 10x fully-diluted CY11 EPS of 13.9sen, in line with our benchmark 1-year joshuang@rhb.com.my
forward target PER for the construction sector of 10-16x.

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Table 2: Asking Prices For Land In The Si-Rusa-Sunggala Area, Port Dickson
Location Area Asking Price Unique Features
(acres) (RM psf)
Mukim of Si-Rusa, Teluk Kemang 2.1 6.05 -
Kg Sawah, Bdr Baru Sunggala 2.5 2.75 Malay Reserve land
Si-Rusa 36 4.10 Freehold development land, potential for swiftlet eco park
Si-Rusa 2.6 2.40 Agricultural land
Si-Rusa 1.9 3.70 Malay Reserve land
Source: Various property portals

Table 3 : Outstanding Orderbook


Project Outstanding value
(RMm)
Seremban-Gemas double-tacking (KM502.6-KM535.5) 200
Tampin Hospital 128
Aqua-culture project in Terengganu 69
Total 397
Source: Company, RHBRI

Table 4: Earnings Forecasts Table 5: Forecast Assumptions


FYE Jun (RMm) FY09a FY10F FY11F FY12F FYE Jun FY10F FY11F FY12F

Turnover 184.6 176.4 233.0 284.0 Construction EBIT margin (%) 15.0 13.5 12.4
Turnover growth (%) 110.8 -4.5 32.1 21.9 New orderbook secured (RMm) 70* 250 250
*Actual
EBITDA 20.5 27.1 32.2 35.8
EBITDA margin (%) 11.1 15.3 13.8 12.6

Depreciation -0.6 -0.6 -0.6 -0.6


Net Interest 1.6 2.2 2.5 2.7
Associates 0.0 0.0 0.0 0.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 21.5 28.7 34.1 37.9


Tax -3.4 -6.3 -8.5 -9.5
PAT 18.1 22.4 25.6 28.5
Minorities 0.0 0.0 0.0 0.0
Net Profit 18.1 22.4 25.6 28.5
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
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officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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