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Zelan (ZELN MK, RM6.25, OP, TP: RM7.00) – Receives letter of intent for new job, poised for positive news flow?
- Zelan reported 1H FY08 net profit of RM87.3m (+61% YoY). This includes a gain of RM32m from the sale of 12m IJM Corp shares in May 2007 and a one-off accounting gain of RM10m.
- The company declared an interim dividend of RM0.025/share and a special tax-exempt dividend of RM0.05/share.
- Excluding the one-offs, the 1H FY08 result was below our expectations. This is due mainly to the later-than-expected commencement of works to its Shuqaiq 2 power & water desalination project in Saudi Arabia and Rembang power plant project in Indonesia. However, it is more of a timing issue as work has already started on both projects (in June and May 2007 respectively).
- Zelan, via a 70:30 joint venture, has also received a letter of intent for the construction of Meena Plaza, a mixed development project in Abu Dhabi, worth RM864m.
- While there is a risk that FY08 net profit could be lower than expected, we continue to believe that newsflow in the next 12 months should be positive for Zelan. The company intends to submit tenders for various jobs worth as much as RM7.5bn in the next six months.
- We reiterate our Outperform rating on Zelan. We believe the company is well positioned to benefit from capex spending on energy in Asia. The International Energy Agency estimates that to meet their electricity demand, India, Indonesia and the Middle East need to spend about US$26bn pa over the next 25 years on power plant projects. (Gerald Sheah)
Telekom Malaysia (T MK, RM9.70, OP, TP: RM11.20) – RM15.2bn broadband project
- Telekom Malaysia has been awarded the RM15.2bn High Speed Broadband (HSBB) services project to be rolled out under a public-private partnership (PPP) with the government. The government is expected to foot a third of the bill, ie RM5bn. The project is expected to be spread over ten years and the aim is for broadband penetration in Malaysia to hit at least 50% of households or 2.2m by 2010. Currently broadband penetration in Malaysia is estimated at 13%.
- We view this development positively for TM and maintain our Outperform recommendation on TM. At the very least, this move will subsidise a third of TM's broadband network rollout and contribute to the longer term profitability of TM's fixed line business. Elsewhere, we see continued stability in TM's fixed line businesses as well as strength in foreign mobile operations as providing upside catalysts for earnings and valuations. (Prem Jearajasingam)
