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Friday, January 27, 2012

IJM, AZRB Win RM1.74bn MRT Jobs (OSK)

In a statement to the press, MRT Corp said IJM Construction will be appointed the main contractor for Package V5, which will cover the construction and completion of the Viaduct Guideway and other associated works from the Maluri Portal to Plaza Phoenix Station worth RM974m. AZRB will be appointed the main contractor for Package V6 which encompasses the construction and completion of the Viaduct Guideway and other associated works from Plaza Phoenix to Bandar Tun Hussein Onn Station with a contract value of RM764m. Both awards are subject to the successful tender parties accepting the Letter of Award to be issued by MRT Corp in due course.

Neutral on AZRB. With the RM764m V6 package under its belt, we revisited our AZRB model to tweak our FY12 (ending 31 Dec) orderbook replenishment assumption higher to RM1bn (from RM400m previously). With all else constant, our FY12-13 EPS is now revised upwards by 12.7%-24.7%. Pegging an unchanged 9x PER to mid-CY12 earnings, our FV now stands at RM0.79 (from RM0.74 previously). Nonetheless, we maintain our NEUTRAL stance since the share price has inched up by 8.0% yesterday to close at RM0.74, leaving less than 10% upside to our revised target price.

Updates on WCE for IJM.
Maintain NEUTRAL. Following these significant contract awards (which represent 15% of the RM12bn elevated portion of the KL MRT SBK line), we believe the MRT project implementation will gain further momentum and all eyes will be on the tunneling portion, which is likely to be made known next. From our brief checks with various sources, 45% of the RM20bn KL MRT SBK line is expected to be awarded by April 2012 and 85% by October. The tender process for the tunneling package worth as much as RM8bn has closed and we understand that the award could be announced as early as March/April. Hence, we foresee trading opportunities especially in the run-up to official awards for the usual “suspects”, such as: Gamuda (BUY; FV: RM3.94) given its joint appointment with MMC as the Project Delivery Partner for the whole KL MRT project and the Gamuda MMC JV’s track record in tunneling works; TRC Synergy (TRADING BUY; FV: RM0.76) being the only contractor that has been prequalified for all categories in both the open and Bumiputera portions; and KimLun (BUY; FV: RM2.15) leveraging on its expertise within the tunnel lining segment. Maintain our NEUTRAL stance on the sector for now, given our market capitalization-based recommendation approach. Nonetheless, we do not discount a potential re-rating on the sector in the near future, pending more concrete signals on the overall market direction.

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