By OSK RESEARCH
CONSTRUCTION SECTOR
Overweight (maintain)
FIRST quarter 2012's domestic contracts soared 100% year-on-year and quarter-on-quarter to RM13.3bil, boosted by the progressive roll-out of contracts from the Klang Valley My Rapid Transit Sungai Buloh-Kajang (KV MRT SBK) line, which is expected to be completed by July 2017. We see the same factor fuelling the jobs flow for the remainder of 2012, as six out of the total eight packages for the elevated portion of the SBK line worth a combined RM5bil-RM6bil have yet to be awarded.
We maintain “overweight” on the sector as the deluge of positive news in the next few months is likely to fire up the sector this year, with Gamuda(buy, fair value at RM4.58) and Kimlun (buy, fair value at RM2.37) as our high conviction top buys.
From a compilation of Bursa announcements, the total value of contracts awarded in the first quarter amounted to RM16bil. These comprise RM13bil in local awards, with the KV MRT SBK line making up a sizeable RM10.1bil while foreign contracts made up the remaining RM2.9bil.
Excluding the SBK-related jobs, local jobs made up RM2.9bil of the total, rising 4.9% year-on-year and 27.8% quarter-on-quarter, although their share of the total value of contracts was down 43.6 percentage points year-on-year and 11.2 percentage points quarter-on-quarter to 49.5%, partly due to Scomi Engineering clinching a RM2.6bil contract to develop a monorail system in Manaus in Brazil with three consortium partners.
During the first quarter, a sizeable RM10.1bil worth of contracts was dished out in relation to the KV MRT SBK line. Being the first of the three lines under the massive KV MRT project, the SBK line is targeted to be fully operational by mid-2017.
To date, 27 works packages have been awarded to public-listed and unlisted contractors, while tenders and awards for the remaining 63 packages are expected to be mostly completed by the fourth quarter. Some of the key packages that have been awarded include Package v5 to IJM (trading buy, fair value at RM6.55), Package v6 to AZRB (neutral, fair value at 91 sen), supply of segmental box girders from v1 to v4 to Kimlun, as well as the RM8.2bil underground portion which went to MMC-Gamuda.
Going into the second quarter 2012, we understand at least three more packages, i.e. v1, v2 and v7 of the KV MRT SBK line each worth an estimated RM1bil will be awarded, with the tunnel lining segment also likely to be given out. We also expect more news on the 1,400 MW gas-fired Prai Power Plant, for which the Energy Commission has shortlisted nine consortiums as potential candidates as independent power producers, as well as some new jobs in the Sarawak Corridor of Renewable Energy with the forthcoming general election within sight.
By Kenanga Reserach
Underperform (maintain)
Target price: RM4.26
MMHE finally announced that it had completed its purchase of the Sime Darby fabrication project on Monday.
We understand that it will also take control of the Kebabangan project. However, we believe it will charge rental for the Oil & Natural Gas Corp (ONGC) project, which we understand has yet to be completed. We are upgrading our FY12-13 earnings estimates by 5.3% and 9.7% respectively to RM349.5mil and RM413mil. We retain our “underperform” call on the stock with a higher target price of RM4.26 (from RM4.04 previously) based on an unchanged CY12 PE ratio of 19.5 times.
The company's Sime Darby yard acquisition, purported to be worth RM393.4mil, was announced in May 2011 but had remained uncompleted due to unclear reasons until now.
The company also mentioned that it had taken over control of the Kebabangan Topsides project worth RM1.15bil that was awarded to Sime Darby Engineering in April 2011. Recall that we have previously mentioned (in our last note) that there is the possibility of this happening. We estimate that the new project will boost MMHE's order book to RM4.2bil (from RM3.1bil currently).
Assuming the contract has not started and will still take around 29 months for completion, and assuming a commencement date of mid-2012, we estimate the contract could add around RM237.9mil, RM475.9mil and RM436.2mil to MMHE's FY12-14's revenue respectively and boost the net earnings by 5.3%, 9.7% and 11% respectively.
We, however, note that MMHE has not assumed control of the ONGC project, but is likely to charge the company rental for the space that the project will take up. There was no guidance on the rental fee that could be charged.
We are upgrading our FY12-13 earnings estimates by 5.3% and 9.7% respectively to RM349.5mil and RM413mil, as we assume the Kebabangan project will kick off by mid-year. As mentioned above, this is based on the project hitting FY12-14 revenue of RM237.9mil, RM475.9mil and RM436.2mil respectively.
We maintain “underperform” but upgrade target price to RM4.26 (RM4.04 previously) based on unchanged 19.5 times CY12 PE ratio (a premium to the sector average of 15 times due to its Petronas-patronage status) due to the increase in our earnings forecasts. While this is a positive turnout for the company, we are still cautious on the stock. As long as Sime Darby has not completed the ONGC contract, the company will still not have full access to the new yard.
By Maybank IB Research
Hold (maintain)
Target price: RM3.93
WE are “neutral” on SP Setia Bhd's latest joint venture (JV) in China. Whilst the backing by both governments will lower the overall project risk, we remain concerned on the challenging Chinese property market. We maintain our earnings forecasts and RM3.93 target price. The latest development reaffirms our view that SP Setia is likely to benefit from future government land developments/projects, backed by its proven track record, sound management and government-linked status.
Through its 45%-owned Qinzhou Development (M) Consortium Sdn Bhd (QDMC), SP Setia has entered into a JV framework agreement with QinZhou Jingu Investment (QJI), controlled by Qinzhou City Development and Investment Group, to establish a JV company (49%-owned by QDMC), China-Malaysia Qinzhou Industrial Park Investment (QIPIC), to undertake the development, construction and operation of the 13,590.5-acre Qinzhou Industrial Park (QIP).
The immediate development focus of QIP is the 1,945-acre “start-up” district. QJI will seek approval for swapping up to 30% of the commercial and residential land in the star-up district for another piece of commercial and residential land (with the same land value) in the more established Binhai New Town. Binhai is designed to be an industrial service centre, seaside tourist resort and high-end residential district with an expected future population of 500,000 upon completion.
We see relatively moderate project risk since the JV project is backed by both governments. It will be the third industrial park in China with government-to-government collaboration after Suzhou Industrial Park and Tianjin Eco City. And we remain cautious on the challenging Chinese property market and do not expect significant contributions from the project over the short term.
Also, the approval processes take time (the launching of Sunway's Tianjin Eco City has been postponed for two years due to the delay in approvals).
The immediate cash outlay will be the RM193.6mil or 22% effective stake of RM878mil registered capital for QIPIC. This could raise SP Setia's net gearing to 0.14 times, from 0.08 times as at January 2012, and still healthy.
INFRASTRUCTURE SECTOR
By AmResearch
Overweight
PRESS Metal's new aluminium smelting plant would be the first user of electricity from the Bakun Dam. The facility at the Samalaju Industrial Park would start taking in power from Sarawak Energy Bhd (SEB) from this month onwards.
SEB CEO Torstein Dale Sjotveit was quoted in a report as saying that the 275kV transmission line linking SEB's Samalaju power station and Press Metal's new plant had been energised last Thursday. Under the deal, Sjotveit added that Press Metal was to purchase some 480 MW of power to kick-off commercial operations at its new smelter by June (our assumptions are by the third quarter).
The 480 MW of power is to run Press Metal's new Samalaju smelter, which has a capacity of 240,000 MW. Its existing 120,000-tonne Mukah smelter which is taking in some 200 MW of power is already running at full capacity.
Apart from Press Metal, progress for the other three pioneer investors at Samalaju is also fast taking shape and would commence operations in stages within the next two years. Tokuyama's polycrystalline silicon plant (phase II) is scheduled to be operational by the second quarter 2014 following the commencement of phase 1 in September next year.
Asia Mineral Ltd, which has signed a long-term power supply of 270 MW with SEB, is scheduled to commence its manganese and ferro alloy smelting plant in June or July 2013.
OM Material's Sarawak RM1.5bil plant (80:20 JV between OM Holdingsand the CMS group), which would produce similar products as AML, would start power consumption and production testing from the second half next year.
As such, we gather that SEB is set to construct three new transmission lines to connect power to these three new facilities at Samalaju, in addition to Press Metal's. One line would be for 132kV, while the other two remaining lines are for 275kV.
We believe Sarawak Cable would be favourably positioned to bid for these new transmission line projects, as it is currently constructing both the 132kV Samalaju-Tokuyama (RM6mil) and 265kV Samalaju-Press Metal (RM8mil) lines and also supplied the power cables for the 275kV Bakun-Samalaju transmission lines.
Taken together, these latest developments should solidify Sarawak Cable's chances to secure works for Sarawak's RM3bil 500kV backbone transmission line system (transmission portion: RM2bil), whereby it is one of five parties (and the only local outfit) which has been pre-qualified for this massive job.
From an end-user's standpoint, Press Metal's long-term power supply agreement with SEB (25 years) should help strengthen its grip as the leading integrated aluminium player within Asean.
where capacity should triple to 360,000 tonnes when the Samalaju facility is fully commissioned by the first half next year.
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