PP 7767/09/2010(025354)

RHB Research
Malaysia Corporate Highlights
26 April 2010
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Resu lts Pr eview 26 April 2010

MARKET DATELINE

Fajarbaru Builder Group Share Price

Fair Value
:
:
RM1.06
RM1.31
9MFY06/10 Results To Beat Our Expectation Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (FAJAR; Code: 7047) Bloomberg: FBC MK

Net FD Net
FYE Turnov Profit# EPS# Growth PER EPS# C.EPS* P/CF P/NTA ROE Gearing GDY
Jun (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (x) (%) (%) (%)
2009 184.6 18.1 15.2 56.3 7.0 - - 3.3 1.3 17.8 Cash 5.2
2010f 176.4 22.4 13.6 (10.1) 7.8 11.6 - 17.8 1.5 19.0 Cash 5.2
2011f 263.0 28.0 16.1 18.1 6.6 14.5 - 12.2 1.3 20.2 Cash 5.2
2012f 374.0 35.9 19.5 21.2 5.4 18.5 - 8.6 1.2 21.5 Cash 5.2
Main Market Listing /Non-Trustee Stock /Syariah-Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ 9MFY06/10 results to surprise on the upside. We expect Fajarbaru’s Issued Capital (m shares) 166.2
9MFY06/10 net profit to come in at RM16.5-17.5m that is equivalent to 80- Market Cap(RMm) 176.2
85% of our full-year forecast, beating our expectation. The stronger-than- Daily Trading Vol (m shs) 0.7

expected performance will likely have been driven by higher-than-expected 52wk Price Range (RM) 0.84-1.25
Major Shareholders: (%)
margins from key on-going construction projects.
Big Victory Holdings 13.3
♦ Weak job flow in FY06/10. Having re-assessed Fajarbaru’s current tender Dato’ Ir Kuan Peng Ching 9.4
book, it appears that the company is unlikely to announce any new contracts Dato’ Ir Low Keng Kok 7.3
over the next 2-3 months as the winning bids of new contracts that it is
FYE Jun FY10 FY11 FY12
currently eyeing/tendering will only be announced beyond FY06/10. This
EPS Revision (%) +9 -11 -13
means Fajarbaru is unlikely to meet our FY06/10 new orderbook target of Var to Cons (%) - - -
RM400m. So far in FY06/10, Fajarbaru has only managed to secure RM70m.
PE Band Chart
♦ Forecasts and assumptions. We are raising FY06/10 net profit forecast by
9% largely to reflect a higher blended margin of 15% vis-à-vis 11.3% PER = 9x
PER = 7x
previously. However, FY06/11-12 net profit forecasts are cut by 11-13% PER = 5x
largely to reflect the impact of the shortfall in new contracts secured in
FY06/10.
♦ Risks. The risks include: (1) New contracts secured in FY06/11-12 coming in
below our target of RM400m per annum; and (2) Rising input costs.
♦ Improved investors’ risk appetite. We are now more upbeat on the
Relative Performance To FBM KLCI
construction sector, prompted largely by investors’ improving risk appetite
for construction stocks following: (1) The massive underperformance of the
sector vis-à-vis the market in 4Q2009 and 1Q2010; and (2) A better sector Fajarbaru Builder
news flow and new expectations leading up to the announcement of the 10th
Malaysia Plan (10MP) in June 2010. FBM KLCI

♦ Maintain Outperform. Fajarbaru is a good proxy to the construction sector

due to its still undemanding valuations. Its balance sheet is strong with a
net cash of RM134.7m as at 31 Dec 09, translating to a whopping
82sen/share. Indicative fair value is trimmed by 3% from RM1.35 to RM1.31
based on 10x revised fully-diluted CY10 EPS of 13.1sen, in line with our
benchmark 1-year forward target PER for the construction sector of 10-14x. Joshua CY Ng
(603) 92802151
joshuang@rhb.com.my

Please read important disclosures at the end of this report.

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9MFY06/10 Results To Beat Our Expectation

♦ 9MFY06/10 results to surprise on the upside. We expect Fajarbaru’s 3QFY06/10 results due out by the end
of the month, to come in at RM6-7m at the net level. As such, cumulatively, 9MFY06/10 net profit will come in at
RM16.5-17.5m that is equivalent to 80-85% of our full-year forecast, beating our expectation. The stronger-
than-expected performance will likely have been driven by higher-than-expected margins from key on-going
construction projects, i.e. the Seremban-Gemas double-tracking project and Tampin hospital, on better cost
control and project optimisation.

♦ Weak job flow in FY06/10. Having re-assessed Fajarbaru’s current tender book, it appears that the company
is unlikely to announce any new contracts over the next 2-3 months (between now and the end of FY06/10). The
winning bids of new contracts that Fajarbaru is currently eyeing/tendering will only be announced beyond
FY06/10, comprising, among others, the RM400m teaching-hospital in Kuantan based on the private finance
initiative (PFI) model, the remaining work packages of the new LCCT including parking apron (RM200m), taxiway
(RM100m) and runway (RM400-500m), a bridge/road project in Peninsula Malaysia and the LRT line extension
project. This means Fajarbaru is unlikely to meet our FY06/10 new orderbook target of RM400m. So far in
FY06/10, Fajarbaru has only managed to secure one contract, i.e. the RM70m earth, infrastructure and civil works
for Phase 1 of an equa-culture/shrimp farming project in Setiu, Terengganu.

♦ Forecasts and assumptions. We are raising FY06/10 net profit forecast by 9% largely to reflect a higher
blended margin of 15% vis-à-vis 11.3% previously. However, FY06/11-12 net profit forecasts are cut by 11-13%
largely to reflect the impact of the shortfall in new contracts secured in FY06/10 (RM70m actual vis-à-vis
RM400m we assumed). We are keeping our new orderbook target of RM400m per annum in FY06/11-12
assuming the roll-out of public projects is to pick up from 2H2010.

♦ Risks. The risks include: (1) New contracts secured in FY06/11-12 coming in below our target of RM400m per
annum; and (2) Rising input costs.

♦ Improved investors’ risk appetite. We are now more upbeat on the construction sector, prompted largely by
investors’ improving risk appetite for construction stocks following: (1) The massive underperformance of the
sector vis-à-vis the market in 4Q2009 and 1Q2010; and (2) A better sector news flow and new expectations
leading up to the announcement of the 10th Malaysia Plan (10MP) in June 2010. We believe these may to a
certain extent, moderate the negative elements that have weighed down on the performance of the construction
stocks over the last two quarters such as: (1) The slow pace of the roll-out of public projects, shrinking margins
and declining dominance of established players in large-scale projects locally; and (2) The not-so-rosy outlook
and increased operating risks in key overseas markets (following the Dubai credit crisis, Dong’s devaluation and
rising arbitration cases).

♦ Maintain Outperform. Fajarbaru is a good proxy to the construction sector due to its still undemanding
valuations. Its balance sheet is strong with a net cash of RM134.7m as at 31 Dec 09, translating to a whopping
82sen/share. Indicative fair value is trimmed by 3% from RM1.35 to RM1.31 based on 10x revised fully-diluted
CY10 EPS of 13.1sen, in line with our benchmark 1-year forward target PER for the construction sector of 10-14x.

Table 2 : Outstanding Orderbook

Project Outstanding value
(RMm)
Seremban-Gemas double-tacking (KM502.6-KM535.5) 226
Tampin Hospital 131
Aqua-culture project in Terengganu 70
Total 427
Source: Company, RHBRI

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Table 3: Earnings Forecasts Table 4: Forecast Assumptions

FYE Jun (RMm) FY09a FY10F FY11F FY12F FYE Jun FY10F FY11F FY12F

Turnover 184.6 176.4 263.0 374.0 Construction EBIT margin (%) 15.0 13.3 12.1
Turnover growth (%) 110.8 -4.5 49.1 42.2 New orderbook secured (RMm) 70 400 400

EBITDA 20.5 27.1 35.5 45.7

EBITDA margin (%) 11.1 15.3 13.5 12.2

Depreciation -0.6 -0.6 -0.6 -0.6

Net Interest 1.6 2.2 2.5 2.8
Associates 0.0 0.0 0.0 0.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 21.5 28.7 37.4 47.9

Tax -3.4 -6.3 -9.3 -12.0
PAT 18.1 22.4 28.0 35.9
Minorities 0.0 0.0 0.0 0.0
Net Profit 18.1 22.4 28.0 35.9
Source: Company data, RHBRI estimates

Chart 1: Fajar Technical View Point

♦ The share price of Fajar hit a high of RM1.29 in Aug
2009 after a successful rally from below the
RM0.40 level in Dec 2008, but the subsequent
profit-taking leg dragged it down to below the
RM1.23 important resistance level.

♦ The stock’s trading sentiment deteriorated further

when it dipped to below the RM1.10 level in Nov
2009, and thereafter, it found trouble trying to cut
above RM1.10. It ended last Friday at RM1.07.

♦ Technically, there is a lack of significant chart

signal for the stock to stage a breakout in either
direction.

♦ Therefore, it could continue to fluctuate between

the support of RM0.96 and the resistance of
RM1.10, with an additional hurdle at RM1.23 in the
near term.

♦ A negative signal will only be flashed if the stock

falls below the previous low of RM0.99 and the key
support at RM0.96.

IMPORTANT DISCLOSURES

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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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