Fajarbaru a buy, on the strength of its tender book of RM3b

PETALING JAYA: KAF Research has a buy call for Fajarbaru Builders Group Bhd's (FBC) shares, at a target price of RM1.32 on the back of its tender book of RM3 billion, which puts it in the running for big ticket projects, particularly in the railway sector.

KAF forecasts that FBC's orderbook, which currently stands at RM450 million, will reach the RM600-700 million mark in FY18-FY20. This would surpass its highest orderbook on record, in December 2014.

Citing its construction works track record in the railway sector, KAF is of the opinion that FBC may be able to secure projects such as the Light Rail Transit (LRT) 3 (viaducts and stations) and Gemas-JB double tracking project.

"Other ongoing bids include civil works for the now revived-Asia Petroleum Hub project (via a joint venture with CREC), hospitals, and a shopping mall for a northern transport hub. This excludes potential opportunities under the LRT 3 tunnel by-pass, East Coast Rail Line and KL Singapore High Speed Rail," the research house said.

The group's purchase of trackwork machinery gives it a strong foothold to vie for future maintenance contracts for over 2,200km of railway tracks throughout Malaysia, thus forging an opportunity to establish a strategic position as a 'to-go' contractor for railway solutions.

In May, FBC secured the job to rehabilitate railway tracks between Jerantut to Gua Musang for a contract sum of RM206 million.

On the property front, the completion of its Gardenhill apartment project in Australia which carries a gross domestic value(GDV) of AUD$77 million (RM239 million ), has enabled it to book-in project billings of RM203 million in the second half of 2017(2H17), which will translate into attractive pre-tax margins of 26% in the.

Another project in Australia known as Paragon which is being developed on a joint venture basis between FBC and Melbourne-based Beulah International, has seen a 73% take up rate and sales is expected to pick up in the coming months as more bookings are expected to be converted into sale and purchase agreements (SPA).

"The residential units will be delivered by end-2020, in phases. If this timeline is met, FBC will only be able to recognize Paragon's development profits towards the second half of FY21F," it said.

In Malaysia, FBC unveiled the Rica Residence in Sentul, which had achieved a booking rate of close to 70% prior to its launch on August 3.

"Management hopes to sell more units by year-end through better product awareness and aggressive marketing and promotional activities. On last count, some 85% of these bookings have been converted into SPA, translating into an impressive take-up rate of just under 60%," it added.

As for the timber division which is a steady contributor to revenue, the group could also see an extension to its two concessionaire in the forest of Jerantut, which in turn will provide some upside to earnings.

KAF expects FBC's bottomline to be flat at RM35 million in FY18, as revenue from Gardenhill eases with a bulk of it already recognised in FY17.

Nevertheless, it expects earnings momentum to turn positive again in FY19F-20F on stronger billings from newly-secured contract projects and Rica Residence Sentul.

"Despite twice suffering losses over the last ten FYs (in FY12 and FY15), FBC has remained prudent with its cash management, being either in a lowly-geared or net cash position. In FY17, FBC had a net cash position balance RM19 million. For FY18F, we expect the group to report a small net gearing level of 6% as it leverages-up to part-finance the RM50 million worth of trackwork machinery that is used for the Jerantut-Gua Musang job," the research house said.

Unless it acquires more land, we do not envisage any other significant capital expenditure in the near-term. As such, we project the group to revert to a net cash position of RM36 million by FY20F. Nor are we expecting a cash call anytime soon," it added.

FBC's shares gained 0.56% to close at 89 sen with some 3.19 million shares changing hands. Its market capitalisation stood at RM330.44 million.