(Aug 2, 43.5 sen)
Maintain buy at 43 sen with a fair value of 80 sen: The Edge Financial Daily reported yesterday that the 23.9km Tiradentes monorail project in Sao Paolo, Brazil has been re-tendered.
It was indicated that the Brazilian authorities had requested for a re-issue of the tender, with modifications such as less tight delivery dateline and better payment structure.
We think this is positive news, which gives Scomi Bhd (and its partner Almeida SA) another shot at the contract where we understand Bombardier was the favourite.
This project is worth US$35 million-US$40 million (RM110.6 million to RM126.4 million) per km or RM3 billion in total.
Notwithstanding that, as highlighted in our previous reports, the scale of planned monorail projects in Brazil is massive — a total of 77km of monorail line is planned.
Even if Scomi were to miss out on the first line (Tiradentes), the group could still be involved in the remaining lines.
We understand two other tenders are coming up (i) Manaus — 20km (Aug 9); and (ii) Sao Judas — 21.5km (September)
Obviously, looking at the size of the Tiradentes contract (RM3 billion) — assuming 45% stake in the JV with a net margin of 6%, Scomi’s EPS for FY11F-FY12F would be boosted by 30%-35% (9.9 sen to 11.5 sen).
On the flipside, there would be some concerns on the operating environment in Brazil given the unfamiliar territory.
We maintain our buy rating on Scomi Group with an unchanged fair value of 80 sen per share based on a 5% discount to our sum-of-parts valuation of 84 sen per share.
We think Scomi Group is undervalued by the market due to (i) true enough earnings deliverance track record has been weak and (ii) concerns over political connections or lack of it currently; whereby it should benefit from the strong news flows for SEB and impending new rail jobs. — AmResearch, Aug 2
This article appeared in The Edge Financial Daily, August 3, 2010.
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