Pesona seen as beneficiary of Greater KL project

Initiate buy call with a target price of 81 sen: Pesona Metro Holdings Bhd’s new job wins have totalled RM1.8 billion year to date, the highest achieved. Its order book stands at a record RM2.3 billion, growing threefold within a year. This translates into a 9.6 times cover on financial year 2015 (FY15) construction revenue, the second highest ratio within our sector universe.

All of Pesona’s existing jobs are either government-related or from listed property developers in Singapore, Malaysia and Thailand. With 75% of its order book comprising of newly secured jobs this year, risk of cost overruns is minimal.

Management is comfortable to achieve RM500 million in new job wins for FY17. Potential jobs include hospitals (RM220 million) and river beautification (RM200 million). Given Pesona’s strong track record in building jobs, we view it as a beneficiary of Greater Kuala Lumpur’s catalytic developments.

Pesona will soon conclude the acquisition of SEP Resources (M) Sdn Bhd, the eventual concessionaire of the completed Universiti Malaysia Perlis hostel. As concessionaire, SEP will earn from rental and maintenance totalling RM33 million per annum, with potential profit of about RM12 million for FY17 to FY18. Putting things into perspective, this is equivalent to Pesona’s profits last year.

Mosaic Theory suggests that Pesona is the 30% concession partner for the Serdang-Kinrara-Putrajaya (SKIP) Expressway with the balance 70% held by Putrajaya Perdana. At a cost of RM2.1 billion, Pesona’s stake would provide RM630 million worth of work to undertake, boosting its order book by 29%. Upon completing the expressway, this would provide another avenue of recurring income to Pesona via tolling. — HLIB Research, Dec 5

This article first appeared in The Edge Financial Daily, on Dec 6, 2016. Subscribe to The Edge Financial Daily here.