Ahmad Zaki Resources

Not Short on Jobs

AZRB’s 9MFY09 earnings of RM15.6m (+24.8% y-o-y) were within our expectations (-
2.4%). Earnings were lower q-o-q despite the higher revenue due to unrealized
foreign currency translation losses. Its job wins momentum has been positive so far,
as the company has picked up RM826m worth of contracts YTD. The potential jobs in
the short term include preliminary works for the Kenyir Dam and a low cost housing
job. Maintain BUY.
Within expectation. AZRB’s 3QFY09 revenue came in at RM161.8m (-2.3% y-o-y) and
earnings at RM5.6m (+3.8% y-o-y). On a cumulative basis, 9M earnings stood at RM15.6m
(+24.8% y-o-y). Margins for the 9M period rebounded given the higher material prices
incurred last year, with EBIT and net figures at 8.1% and 4.4% (FY08 comparatives at 5.5% and 2.5%). The company’s annualized earnings came in within our expectations (-2.4%).
Numbers lower q-o-q. From a q-o-q perspective, revenue was up 97.6% but earnings fell
by 12.3%. The higher revenue was mainly attributed to some of its jobs gaining momentum.
However, the fall in profits was due to unrealized foreign currency translation losses on
advances made to a foreign subsidiary.
Reversal of fortunes. After a lackluster year for contracts in FY08, AZRB is indeed
witnessing a reversal in its fortunes this year. To date, it has secured job totaling RM826m
compared with only RM115m in FY08. Based on the construction contracts announced on
Bursa YTD, we note that the average value per job stands at RM165m, which indicates that
small jobs dominate the pump priming scene. We see AZRB as a clear beneficiary of small
job pump priming as its contract sizes are usually in the RM100m–RM300m range. AZRB’s
orderbook balance stands at RM1.3bn.
More to come. Media sources said that AZRB is in the running for a RM50m contract
involving preliminary civil works for the 2nd Kenyir Dam. We gather that the award for the
preliminary works could materialize pretty soon once tenders for the dam itself are called.
We also understand that AZRB is eyeing a low cost housing job (~RM100m) which is
expected to materialize by early-2010. Some jobs could also come from Terengganu,
where AZRB has a strong foothold.
Maintain BUY. As the results were within expectations, we are keeping our FY09
estimates unchanged. However, we are cutting our FY10 forecast by 3.1% and raising
FY11 by 3.7% owing to: (i) the tweaking of our revenue recognition for its newer jobs, and
(ii) our oil & gas analyst’s change in earnings forecast for EPIC (BUY, TP: RM2.03). Our
RM1.24 TP is still based on an average of 11x FY10 earnings and 1.6x P/BV. Maintain
BUY.