UEM Edgenta’s MRT related job win ‘not entirely surprising’
KUCHING: UEM Edgenta Bhd’s ( UEM Edgenta) MRT2 related job win was deemed ‘not entirely surprising’ by analysts given that management had previously guided that it is looking to undertake utilities relocation works for both the MRT2 and LRT3.
UEM Edgenta announced on Bursa Malaysia that wholly-owned subsidiary Edgenta PROPEL Bhd ( PROPEL) had on August 12, 2016 accepted the letter of award from Ahmad Zaki Sdn Bhd for the relocation of telecommunication works in relation to the Projek Mass Rapid Transit Laluan 2: Sungai Buloh-Serdang-Putrajaya, Package V202: Construction and Completion of Viaduct Guideway and Other Associated Works from Persiaran Dagang to Jinjang.
Valued at RM87 million for 17 months, the contract is expected by UEM Edgenta to contribute positively to the group’s future earnings and net assets per share.
“This job win is not entirely surprising as management previously guided that it is looking to undertake utilities relocation works for both the MRT2 and LRT3,” the research arm of Hong Leong Investment Bank Bhd ( HLIB Research) said.
“The job scope for this contract is pretty much within PROPEL’s expertise which currently centres on a wide array of highway maintenance works, including utilities relocation.”
HLIB Research believed that there is potential for PROPEL to secure more of such utility relocation contracts. According to HLIB Research, the MRT2 has thus far seen the award of four viaduct packages with the remaining six to be dished out from now until the first quarter of 2017 (1Q17).
“As for the LRT3, we understand that there will be a total of 10-12 viaduct packages,” it said. “PROPEL’s potential participation in the utility relocation works will be via subcontracted portions from these main viaduct packages.”
On a side note, the research arm pointed out that risks associated with this contract is relatively minimal is it is within PROPEL’s usual work scope.
HLIB Research’s earnings forecast have been left unchanged as the impact from the contract is relatively insignificant.
Whilst the research arm liked UEM Edgenta’s cash flow generating capabilities, the lack of upside catalysts coupled with further impairment risks from Opus Stewart Weir prompted HLIB Research to retain its ‘hold’ rating.
HLIB Research’s sum of parts based target price of RM3.87 per share implied financial year 20162017 price- earnings of 17-fold and 14.6-fold respectively.