KUALA LUMPUR (Oct 14): Ahmad Zaki Resources Bhd (AZRB) rose in morning trades after Alliance Research said it would gain from the new Bumiputra Policy announced recently by the Prime Minsiter.

In a morning report, Alliance Research has maintained its "buy" call on AZRB with unchanged target price RM1.20 after saying the Bumiputra contractor is likely to benefit from future government related projects.

At 12.30 pm noon break, the stock went up by 3 sen or 3% to RM1.03 on trades of 2.7 million shares.

Last month, Prime Minister Datuk Seri Najib Razak unveiled the Bumiputra Economic Empowerment plan which involves carving out projects specifically for qualified Bumiputra contractors.

These projects explicitly allocate a certain portion (30-40%) solely for Bumiputra participation, it added.

Alliance Research pointed out that “entrepreneur-driven Bumiputra contractors such as AZRB” stand the best chance to benefit from these projects.

AZRB recently announced that it was awarded an RM163 million contract to build the new Air Police Base in Jalan Lapangan Terbang Subang, Shah Alam.

The research house noted the new base is to replace the existing one at the Sg Besi Airfield, which has been earmarked for redevelopment by 1MDB.
“This contract win vindicates our view on AZRB’s ability to continue securing government related contracts.

“We estimate that total contact wins from the government, its related entities and GLCs make up 89.4% of AZRB total job wins of RM6.5 billion since 2005,” said analyst Jeremy Goh of Alliance Research.

With this recent award, AZRB’s year-to-date job wins stand at RM1.89 billion as compared with its full year assumption of RM1.8 billion, the research house noted.

Goh pointed out that YTD job wins of RM1.89 billion has marginally surpassed its full year target by 4.8%.

“As we do not expect any of its outstanding tenders to materialise for the remainder of the year, we deem our assumption to be inline,” he added.

For FY14-15, the research house has assumed RM400 million in new job wins.

Contracts in the pipeline include the Langat 2 water treatment plan where the Salcon-MMC-AZRB joint venture is understood to have submitted a RM1 billion bid, Goh pointed out.

AZRB’s 30% stake in the JV will land itself with RM300 million worth of works if the bid is successful, he added.

However, he mentioned that the outcome to be known in 1Q14 when the Selangor water consolidation exercise is expected to be resolved.

While the slowing of government related projects is a concern given fiscal tightening, Goh said such repercussion would mostly impact mega projects.

Mid- to small-scale projects (below the RM300 million range) in which AZRB focuses on should be less impacted, he added.

Meanwhile, the research house also mentioned that AZRB is also bidding for the building works for the Angkasapuri redevelopment.

The package that it is bidding for is worth RM300 million to RM400 million, it added.