KDEB eyes 2 Indonesian infrastructure projects

The Edge Daily

KUMPULAN Darul Ehsan Bhd (KDEB) is currently looking at a RM50 million 10MW independent hydro power plant project and a RM600 million 150km toll road project in West Sumatera, Indonesia, said CIMB Equity Research.

It said if the restructuring efforts of Kumpulan Perangsang Selangor Bhd (KPS), of which KDEB holds a 53.9% stake, for Selangor’s water industry do not go through, the group would continue expanding its core businesses of property development and toll highway.

KPS, via its 57%-owned subsidiary Kumpulan Hartanah Selangor Bhd (KHSB), currently has 10,000 acres of undeveloped landbank, mainly in Pulau Indah and Bestari Jaya.

“We understand that the group’s near-term strategy is to move gradually into the boutique, mid-high end development segment. It, therefore, plans to dispose of some of its existing landbank and use the proceeds to buy pocket-sized plots in prime locations,” it said in its research report.

The research house said KPS stands to gain if KDEB is formally awarded the RM5 billion Langat 2 construction project, and if KDEB spearheads the restructuring of Selangor’s water industry.

“Assuming all the pieces of the puzzle come together, KPS could become one of the best proxies for the Pahang-Selangor interstate raw water transfer project and possibly, even for the Malaysian water sector,” it said.

CIMB Research said KPS could potentially post RM1 billion revenue in FY09 with the inclusion of potential construction profits from Langat 2 and the incorporation of Syabas’s revenue stream, representing a 2.6 times increase from FY06’s RM379 million.

“Assuming a net profit margin of 15%, KPS could chalk a FY09 net profit of RM150 million or an equivalent of 35 sen earnings per share (EPS). Imputing a 12 times price-to-earnings (P/E) multiple, in line with listed infrastructure players, this potentially implies valuation of RM4.17,” it said.

CIMB Research said however, KPS’s net profit would only be RM80 million in FY09 or an EPS of 18 sen, and the stock would be valued at RM2.16 applying a similar 12 times P/E multiple or a 33% downside to its current price of RM3.24.

It added that execution is KPS’s biggest hurdle as it remains to be seen if it can successfully carry out the massive plans for Selangor’s water industry, and if it can fully undertake Langat 2’s construction works when a formal award is given.