Target price RM1.55??? Your broker is extremely bullish about LCL...
NEWS FROM MY BROKERS , just in case you are interested.
For reference only. Not asking you to buy.
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LCL Corporation – RM154m Tiara Tower contract cancelled (Company Update)
Price: RM0.465
Target Price: RM1.55
Recommendation: BUY
l Zabeel Investments, owner of Tiara United Tower cancel plans for hotel. Given the current market scenario in Dubai, Zabeel has decided to alter the use of Tiara United Tower to an Office from the proposed hotel.
l As such, they have terminated the AED156m (RM154m) interior fit-out contract with LCL. LCL has received AED39m or 25% advance payment for the job and has received subsequent payments based on monthly progress claims.
l Full payment for all contract sums spent to date. Arabtec the main contractor has re quested LCL to submit the final payment claim for all cost spent to date.
l Possible upside if the building materials acquired is used for another job. We have checked that LCL has not commenced significant fabrication work and has just bought the building materials for the job. As such, if the building material is reused for other jobs, the profit margins for the new jobs will be substantially higher.
l LCL is not expected to make losses from this project. With full compensation, LCL is not expected to suffer any losses but the recognition of revenue and profit will be lower than the earlier forecast of RM1 47m.
l We are lowering FY09E net profit forecast by 13.4% to RM44.2m from RM51.1m assuming the partial loss of the contract which was scheduled to be completed in July 2009.
l We estimate that the earlier orderbook of RM954.2m is now reduced to RM807.2m with RM536m remaining unbilled. LCL is still bidding aggressively for jobs in the Middle East and its reach into Abu Dhabi and Bahrain should provide better opportunities and hedge against a slowdown in Dubai. As most the major main contractors in Dubai are adopting the same strategies, LCL would have a shorter start-up time in these new countries given the familiar main contractors that they will be dealing with.
l Maintain BUY with a lowered target price RM1.55 using the regional IFO companies’ FY09 PER of 5x and FY09E EPS of 30.9sen. LCL trades attractively at 1.7x and 1.5 x FY0 8E and FY09E PER respectively.