This article first appeared in Capital, The Edge Malaysia Weekly on March 25, 2024 - March 31, 2024

Fair value: RM1.98 BUY

AMINVESTMENT BANK RESEARCH (MARCH 20): We maintain our “buy” call on Lagenda with a higher RNAV-based fair value (FV) of RM1.98 per share (from RM1.95 previously). Our higher FV stems from a revaluation of gross development value (GDV) for the company’s projects.

Our FV is based on a discount rate of 30% to our RNAV and a 3% premium to reflect Lagenda’s four-star environmental, social and governance (ESG) rating. The FV implies an FY25F PER of seven times, one standard deviation above its four-year average.

The company witnessed a year-on-year decline in revenue and earnings in FY23, attributed to delays in construction progress during the transition from conventional construction methods to the Industrialised Building System (IBS). Nevertheless, with the IBS process operating at full capacity since July/August 2023, we foresee its construction activities accelerating, resulting in improved y-o-y revenue recognition in FY24F.

Meanwhile, Darulaman Lagenda, which accounts for 47% of the company’s total unbilled sales, is poised to enter mid-cycle development in FY24F. This phase typically yields higher revenue recognition due to accelerated construction progress following the completion of groundwork.

Moreover, Lagenda is expected to achieve another record-breaking sales in FY24F. This surge will be driven by more aggressive launches (8,257 units with a total GDV of RM1.9 billion) in FY24F, along with the launch of townships in Kota Tinggi, Penor, Bernam Jaya and Kulai.

Lagenda is currently trading at a premium P/B of 1.1 times compared with its peers’ average of 0.5 to 0.6 times. The high P/B is supported by the company’s asset-light approach and quick turnaround model.

From an earnings perspective, Lagenda’s FY24F/FY25F PER of six times/five times is appealing compared with its peers’ average of 12 to 15 times, while its FY24F/FY25F dividend yields are attractive at 5%/6%.

In November 2022, Lagenda announced the implementation of a dividend policy by committing to a payout ratio of not less than 25% of its consolidated profit after tax and minority interest. Since then, the company has consistently rewarded its shareholders with dividend payouts of 31% to 36%. We are projecting the FY24F/FY25F/FY26F dividend payout ratio to remain at 31%, which translates into a DPS of 7.2 sen/8.8 sen/10.4 sen. This implies a decent yield of 4.8% to 7% for FY24F to FY26F.

Target price: RM19.37 BUY

MIDF RESEARCH (MARCH 18): PetGas made the final investment decision for the development of a new compressor station that is expected to cost RM650 million in Jeram, Selangor. The project involves the construction of a two-unit gas compressor to boost the capacity of the Peninsular Gas Utilisation (PGU) pipeline network to meet rising demand for gas starting from CY26, as part of the PGU III expansion.

PetGas confirmed that this project falls under its incentive-based regulation framework, which will determine the cost recovery of the project through the transmission pipeline tariff. The project owners will then sanction the budget, allowing contractors to purchase materials and equipment to begin work.

However, note the challenges in final funding. The final funding proportions for the compressor project will be determined later after taking into account factors such as internal cash requirements, gearing levels, interest costs and market conditions.

All in all, we commend this project in consideration that this is a step to sustain PetGas’ future operations amid the expected increase in tariff, while catering to the growing demand for clean fuel gas from the industrial and plantation sectors. 

Target price: RM6.46 BUY

RHB RESEARCH (MARCH 20): We continue to favour Gamuda for its sizeable overseas exposure while maintaining relevance in the domestic space via the Mass Rapid Transit Line 3 (MRT3) tender submitted and Ulu Padas Hydroelectric Dam.

Gamuda’s wholly-owned subsidiary in Australia, DT Infrastructure (DTI), was recently awarded the early works contract for the 372mw Boulder Creek Wind Farm (onshore) in central Queensland by Aula Energy. Based on an assumption of A$1.6 million cost per megawatt installed, we estimate the project to cost about A$600 million.

As for the early works contract awarded to DTI, we estimate it at A$2 million to A$5 million. This assumption was benchmarked against the A$20 million early works contract awarded to CIMIC Group’s UGL and CPB Contractors for the A$5 billion 1,000km transmission line project (CopperString in Queensland).

Although the early works contract is small relative to Gamuda’s order book of about RM24 billion, we view it as an important start for DTI to make its presence felt in Australia’s renewable energy sector before embarking on larger contracts. As at Oct 31, 2023, projects under DTI made up RM4.6 billion, or 19% of the group’s RM24 billion outstanding order book, while projects in Australia, as a whole, contributed 50%.

Target price: RM1.45 OUTPERFORM

KENANGA RESEARCH (MARCH 20): Uzma has been awarded a contract extension by Medco Energi Thailand (Bualuang) Ltd (Medco) for the provision of hydraulic workover unit (HWU) services for the Bualuang project. The scope of works comprises the provision of HWU and associated equipment services required for workover and well service activities off Thailand, with a contract tenure of two years effective March 20.

Based on its historical wins, HWU jobs usually generate total revenue of RM15 million to RM20 million for two-year contracts. The latest win has boosted its FY24 cumulative wins to RM715 million compared with our full-year job win assumption of RM1 billion. We anticipate this job to achieve a net margin of 7% to 8%, consistent with the group’s overall net margins. Thus, we consider this job win as aligning with our expectations.

We like Uzma for: (i) being a beneficiary of the current up cycle in upstream activities leading to increased oil and gas contract flows; (ii) its active thrust into sustainable businesses via its new energy segment, which enhances its ESG appeal and helps future-proof its earnings; and (iii) the looming launch of its Large-Scale Solar plant that will boost its recurring income.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.