Scomi performs well on the back of increasing job flow

KUCHING: Scomi Group Bhd’s (Scomi) subsidiary Scomi Engineering Bhd (SEB) saw a healthy run-up of 30 per cent since June 2010 while continuing to languish at 40 to 43 sen per share on the back of special dividends and news flows on public transport jobs.

STRONG TRACK RECORD: The research house believes that SEB has a strong chance of landing a contract to provide train-cars to expand the KL monorail system due to the group’s reputable track record.

AmResearch Sdn Bhd (AmResearch) in its research report yesterday noted that the group’s shares benefited from recent proposed special dividends of 29.5 sen per share and strong news flow about upgrades to the Klang Valley’s public transportation system.

It was recently reported that the likelihood of the awarding of two major public transport contracts, worth a combined RM1.1 billion, would happen soon. The first contract was for building four-car coaches worth RM600 million for the Kuala Lumpur (KL) monorail system.

A second contract worth RM500 million involved the supply of 400 buses to Syarikat Prasarana Negara Bhd (SPNB) to expand coverage within the Klang Valley. Scania Malaysia Sdn Bhd was expected to supply 150 units, while other parties likely to participate were MAN Truck & Bus (M) Sdn Bhd and Intercoach Sdn Bhd.

The research house believed that SEB had a strong chance of landing a contract to provide train-cars to expand the KL monorail system, due to the group’s reputable track record whereby MTrans Transportation System, which designed, manufactured, installed and commissioned 12 monorail train sets of two-car vehicles and all related systems and equipment for the KL monorail system in 2003, is a wholly-owned subsidiary of SEB.

Furthermore, SEB is currently involved in the supply of monorail trains sets for the Mumbai monorail project with a rail length of 19.5 kilometres (km) worth RM1.8 billion. Its local partner, Larsen & Toubro, is the civil contractor for the project to be completed next year.

Worth RM600 million, the job entailed an expansion to four-train cars from two-train cars currently. Based on this, AmResearch estimated a 21 per cent to 23 per cent jump in earnings for the forecasted financial years of 2011 and 2012, assuming a net margin of 10 per cent.

In addition, there could be more earnings upside for SEB via a LRT-Ampang/Kelana Jaya extension and new Cheras-Kota D

amansara line and MRT involvement via M&E works worth in the region of RM400 to RM500 million.

On a global scale, SEB was also bidding for monorail

jobs worth around US$11 billion or RM35billion including jobs in Brazil, India, Saudi Arabia and Nigeria.

Given the presence it already has in India, Scomi had better chance of being awarded contracts for an extension to its Mumbai job and possibly the Bangalore line for a total of 65km. There were two more lines up for grabs in India as well, measuring almost 20km.

Looking at Brazil, Scomi was bidding for the first phase with a length of 24km via a joint venture with its local partner, CR Almeida SA, a civil engineering outfit based in Brazil.

AmResearch was a bit skeptical that Scomi would be able to clinch this job given that Bombardier, one of the world’s largest maker of commuter trains and electric locomotives, was shortlisted as well. Furthermore, should Scomi were to be successful in its bid, there would be concerns over the operating environment in Brazil due to the unfamiliar territory.

But even if Scomi did not get the first phase, the group could yet get a slice of the action as there were three more lines of monorail system to be built, measuring about 53km in the country.

Taking all these into account, the research firm maintained a fair value of RM0.80 per share for Scomi.