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Friday, July 12, 2013

Ahmad Zaki - Lands MYR171.5m Campus Job (RHB)

We maintain our Buy call, forecasts and fair value of MYR1.47 following the award of a MYR171.5m campus building job.  On improved sentiment post the 13th general election, we believe the buying spree will eventually spill over to small-cap construction stocks from big-cap ones.  We also like Ahmad Zaki for its defensive non-construction businesses such as bunkering and plantation.

♦  First key job in FY13.  Ahmad Zaki has secured a MYR171.5m design and build contract for students accommodation complex at Universiti Teknologi Malaysia in Kuala Lumpur.  This is the very first key contract Ahmad Zaki has secured in FY13, boosting its outstanding construction orderbook by 10% to MYR2.2bn (see Figure 2) from RM2bn.  Assuming an EBIT margin of 5-7%, the contract will fetch RM8.6-12.0m EBIT over the contract period ending Jul 2016.  We are positive on the latest development.

♦  Forecasts.   Maintained as we have already assumed Ahmad Zaki to secure MYR500m worth of new contracts in FY13. ♦  A defensive side that is under-appreciated.  The company is beginning to see the fruit of its labour of having grown some defensive non-construction businesses, i.e. bunkering operation at Kemaman Supply Base, oil palm plantation in West Kalimantan, and the design, build, lease, maintain & transfer (DBLMT) of a teaching hospital for the International Islamic University Malaysia (IIUM) in Kuantan under the Private Finance Initiative (PFI) (see  Figure 1 for more details on these three businesses).  With their defensive, recurring and less cyclical incomes, these three businesses will materially boost the sustainability, visibility and resilience of Ahmad Zaki’s earnings. 

♦  Maintain BUY.  The fundamentals of the construction sector are strong backed by on-going and shovel-ready mega infrastructure, property and oil & gas projects.  We also like Ahmad Zaki for its defensive non-construction businesses such as bunkering and plantation.  Fair value is MYR1.47 based on “sum of parts”

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