Inet Research
1. Recent developments
- Salcon announced that its wholly-owned Salcon Engineering Berhad through its consortium Hydrotek-Salcon Consortium has been awarded with a project for the construction of reservoirs for Phet Kasem and Rat Burana distribution pumping stations and related works in Bangkok, Thailand from Metropolitan Waterworks Authority, Thailand.
- This contract, with a value of RM22.0m
(THB215.7m), is expected to be completed in within 2 years from Notice to Proceed.
- This project, which is under the Eight Bangkok Water Supply Improvement Project, is funded by
Japan International Cooperation Agency (JICA).
- This represents Salcon’s 4th project in Thailand after the Min Buri water distribution pumping station,
supply and installation of trunk mains and the construction of Sam Lae Raw Water Pumpting Station.
- The pace of the secure of new projects has picked up in 2HFY11 after a slower progress in 1HFY11. In
Jul-11, Salcon secured a maiden project in India worth RM16.2m for providing and laying of raw water
pumping main in Davanagere City, Karnataka, India.
- Subsequently in early Sep-11, Salcon secured a sub-contract project for the upgrading, repairing works
and its related works of Sg. Chukai, Kemaman, Terengganu (Chukai flood mitigation plan), with a
project value of RM20.4m.
2. Earnings Outlook
- This new project will take Salcon’s outstanding orderbook to RM1.3bn. The unbilled sales of RM322m
represents a turnover cover of 1.2x based on the turnover of RM271.8m for its construction division for
FY10.
3. Valuation and Recommendation
- We are maintaining our Buy recommendation on the stock for its growing recurring earnings stream from
concession business and strong orderbook.
- The stock is currently trading at 44% discount to its NTA of RM0.75/share, which does not reflect the
promising long-term prospects of its growing concession-based business in China and the doubling in
design capacity of its China concession by end-FY11.
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