Monday, October 12, 2009

Why I Like Fajarbaru Builder

As mentioned before, investors have been to keen to look at big construction firms at the expense of the small-mid cap ones. I expect the stimulus plan to continue to be emphasised in the upcoming Budget, and it is likely that the bulk of the contracts be broken up into smaller size parcels.

Fajarbaru Builder Bhd (Fajar) is a home-grown contractor that has carved a niche in landing medium-sized government contracts of less than RM500mil in value.

1) Order book stands at RM550m to be completed in FY11. In their books include the RM108mil Low Cost Carrier Terminal (LCCT) in Sepang, LCCT Extension works (RM164mil) and Seremban-Gemas Double Tracking subcivil/ earthworks package (RM316mil). Some of the ongoing projects are Electrified Double Track Railway, LCCT expansion, and Tampin Hospital and KTM staff quarters at Batu Gajah. Fajarbaru is eyeing for at least RM1b contracts from LCCT and other government related projects . Currently bidding for some of the works for the new LCCT in KLIA which the Group is eyeing for at least RM500m worth of contracts.

2) Fajar stands out as a small-mid cap construction player with a carved out expertise in interesting sub-sectors. It stands a good chance of participating in the new LCCT given its airport related experience. The other expertise in with the double tracking / earthworks electrified rail projects. Both are nuanced and make the company's resume more solid for similar jobs in the near future.

3) The company is on track for a 3-year earnings CAGR of 23. One of the better managed and cash rich construction company (that is a new thing to hear about a construction firm) with a net cash balance of RM0.62. That's 50% of the share price in cash.

4) Owing to its track record and expertise, Fajar has its noses in front to snatch upcoming airport jobs such as the new LCCT (RM2bn) and Penang Airport upgrade (RM250m). To repeat, in recent years, Fajarbaru has acquired much airport related experience, having worked on jobs at the KLIA, temporary LCCT and Penang Airport. The new LCCT contract will be broken up into 20 packages. Management expects prequalification tenders to be called within the next month and some packages could be awarded by early 2010.

5) This is the key factor for me on why I like Fajar, its the management. Fajarbaru is led by Dato Low, best known as the last Managing Director of Road Builder Holdings before it was acquired. Always bet on a proven winner and Low has the capability to steer Fajarbaru to greater heights given his 3 decades of experience.

Considering all that, it has no business hanging around at RM1.20. Again my pre-qualification is 30% within 6 month.

Shares Outstanding (million) 136.1

Market Cap (RMmil) 148.4

Book value (RM/share) 0.8

P/BV (x) 1.4

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s photo: Kou Shibasaki


Low PE said...

Hi Dali, while I agree it's cash rich, I'm puzzled by its recent private placement. It issues 14 millions shares at 1.13. This dilutes the earning by 10%. Since it has enough cash, why it needs to raise cash by private placement? Is it really cash rich?

Law2020 said...

Fajar has recently advertised for sime middle management staff, particularly a senior contract manager. Deos this mean the getting some big contracts which requires to contract out?