Bags Design-and-Build Project Worth RM297.9mn

ANNJOO and its consortium partner, PT Lumintu Insan Mandiri (PT LUMINTU), have secured a contract worth RM297.9mn on 14 June 2024 from Tenaga Switchgear Sdn Bhd, a subsidiary of Tenaga Berhad (TENAGA). This contract involves the design and build for the electrification of the East Coast Rail Link (ECRL) feeder stations, including a 132kV switching station, overhead transmission lines, underground cable installation, and associated works.

The Indonesia-based company, PT LUMINTU primarily specialises in engineering services, procurement, and project management services provider in construction space, which includes civil, mechanical, and electrical works.

Notably, the feeder stations are namely: (a) FS03-Sg Tong, Terengganu, (b) FS04-Merchang, Terengganu, (c) FS05-Kemasek, Terengganu, (d) FS07- Gambang, Pahang, (e) FS08-Maran, Pahang.

This Project Is Expected to be Completed by 31 May 2026.

Our View

We are positive about this new job win, as it marks ANNJOO’s first move towards vertical expansion, which will complement its existing core operations. ANNJOO is on the verge of entering the utility infrastructure sector to capitalise on the increasing demand for electricity, driven by robust population growth and rising foreign direct investment (FDI) in the data centre industry.

Notably, TNB's indicative CAPEX is approximately RM15bn per annum for upgrading the power grid, aligning with the goals established by the New Energy Transition Roadmap (NETR). This development will stimulate demand for steel products, as more steel-based wiring and cabling will be required to support the grid upgrades. Partnering with PT LUMINTU allows ANNJOO to expedite the diversification process and better secure domestic utility infrastructure projects, leveraging PT LUMINTU’s construction expertise and internalising the steel supply chain.

Impact

We maintain our FY25/26/27F earnings forecasts unchanged as we await additional information on the consortium’s shareholding structure.

Valuation

Following the new job secured, we are revising our target PER from 11x to 12x, resulting in a a new TP of RM1.64. We believe this valuation is fair, considering the following factors: (i) ANNJOO stands to be the biggest beneficiary as the key supplier of steel materials for the Penang LRT project, supported by its cost competitiveness from its steel-making plant in Prai, Penang, (ii) increasing construction activities from the revitalization of the property sector are driving higher demand for steel products, and (iii) the upgrading of the power grid, in line with TNB’s NETR goals, further boosts demand for steel products. Maintain Buy call on the stock.

Source: TA Research - 24 Jun 2024