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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

Fajarbaru Builder Group Share Price

Fair Value
Buying Out Minority Shareholders Of Land In Port Recom : Outperform

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.
♦ 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
forward target PER for the construction sector of 10-16x.

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13 July 2010

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
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
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


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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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