September 14, 2010

EKIB - RHB Research maintains outperform on Emas Kiara Industries

Stock Name: EKIB
Company Name: EMAS KIARA INDUSTRIES BHD
Research House: RHB

Emas Kiara Industries Bhd
(Sept 13, 58 sen)
Maintain outperform at 56 sen with fair value of RM1.52
: Emas Kiara has recently secured combined new geodrain orders of about RM30 million from all the three contractors involved in the land portion works of the Second Penang Bridge, as well as the other earthworks contracts for KLIA2. The new geodrain orders from the Second Penang Bridge are particularly timely as they will pick up where those of the KLIA2 are going to leave off.

Over the short to medium-term, new orders will be underpinned by the remaining works of the East Coast Expressway (geodrains), the potential revival of the West Coast Expressway (geodrains), as well as new contracts from the Brahmaputra Dyke project in Assam, India, (geodykes). The geodrain supply and installation for the RM4.6 billion West Coast Expressway, for instance, may come to as much as RM200 million.

Emas Kiara is penetrating into the European market in a more meaningful way via an OEM-like tie-up with an established player based in Europe. Emas Kiara's value proposition to this tie-up is its manufacturing capacity that the partner is lacking. The tie-up also stands testimony to Emas Kiara's internationally recognised product quality.

We maintain our forecasts, but risks to our view include: (i) Weaker than expected pick-up in the construction sector; and (ii) Rising prices of crude oil, hence geosynthetics, making geosynthetics less attractive as alternative building materials.

We maintain our 'outperform' call. We are upbeat on the construction sector as we foresee construction stocks to generally outperform the market in 2H2010, buoyed by news flow, particularly, from: (i) The RM36 billion KL MRT project; (ii) The RM7 billion Ampang and Kelana Jaya LRT line extension project; and (iii) Federal land deals. Fundamentally, Emas Kiara is well backed by: (i) The rising acceptance of geosynthetic products as substitutes to, or to be used along with, conventional building materials; (ii) The rising awareness towards environment protection, and in Malaysia particularly, coastal erosion control and preservation of mangrove areas that are niche areas to geosynthetics; and (iii) Emas Kiara's commanding market position in the geosynthetics sector in Malaysia with an estimated market share of 60%. Indicative fair value is RM1.52 based on 10 times FY2012/11 EPS, in line with our one-year forward target PER for the construction sector of 10 to 16 times. ' RHB Research Institute, Sept 13


This article appeared in The Edge Financial Daily, September 14 2010.


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