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PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 25 Jan 2021, 1:29 PM

 

E.A. Technique (M) Berhad - Dragged By Impairments & Provisions

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Stripping-out exceptional items amounting to RM81m, E.A. Technique’s (EAT) 3QFY20 core net profit dropped 78.6% YoY to RM2m on the back of a 5.6% YoY decline in revenue to RM66.2m. The weaker performance is mainly attributed to lower recognition from the TST contract as most contributions were already captured in 1HFY20, and fewer charter hires from its two FSOs. Gross and net profit margin contracted 14.8ppt and 12.1ppt due to maintenance activities for some vessels, as well as disruption in its operations given stricter operating procedures implemented. Subsequently, the Group reported core net profit of RM24.7m (-5.7% YTD) as of 9MFY20, meeting 72.6% of our initial forecast with most of the above-mentioned already considered. Moving forward however, and in anticipation of i) minimal to zero contribution from the TST contract given its early expiration, ii) some vessels being off-charter and due for maintenance, and iii) seasonally bad weather during this period, we cut our FY20-22F earnings forecast by 13.1% on average. We maintain our Outperform call on EAT nonetheless in view of its recurring earnings despite recent hiccups. Our TP is adjusted lower to RM0.36 (from RM0.41 previously) based on 7x PER multiple over FY21 EPS of 5.2sen.

  • Headline dragged by impairments and provisions. EAT reported headline net loss of RM79m in 3QFY20 mainly due to RM42.6m in additional provision for the MMHE legal case, with the arbitration result favoring MMHE, and RM39.1m additional provision for impairment loss for its vessels. Stripping this out, the Group reported a marginal core net profit of RM2m against RM8.8m in 2QFY20. This is in tandem with lower revenue of 29.4% QoQ. The weaker performance is attributed to lower recognition from the TST contract (that had lucrative profit margins but was terminated about four months early due to low oil prices) and fewer charter hires from its two FSOs (FSO Muar and FSO Tembikai). 3QFY20 gross and net profit margins were affected further, falling to 11.5% and 3% against 15.6% and 9.3% in 2QFY20 due stricter operating procedures, resulting in significant disruptions to its operations, particularly on the movement of crew.
  • Lower earnings anticipated. Moving forward, in anticipation of i) minimal to zero contribution from TST contract given its early expiration, ii) some vessels being off-charter due for maintenance, and iii) seasonally bad weather during this period, we cut our FY20-22F earnings forecast by 13.1% on average. Having said that, EAT’s earnings outlook is expected to remain in positive territory with growth seen in FY21 onwards with the commencement of the new contract for the three tankers, as well as normalized profit margins. Outstanding orderbook remains healthy at RM867.6m, translating to ~3x FY19 revenue.

Source: PublicInvest Research - 1 Dec 2020

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