E.A. Technique (M) Berhad - So Far So Good

Date: 26/11/2018

Source  :  PUBLIC BANK
Stock  :  EATECH       Price Target  :  0.73      |      Price Call  :  BUY
        Last Price  :  0.40      |      Upside/Downside  :  +0.33 (82.50%)

E.A. Technique (EAT) reported 9MFY18 headline profit of RM107.7m (>100% YTD). Stripping-off some exceptional items amounting to RM83.1m which includes the writeback on EPCIC project cost of RM87.5m recognized in 2QFY18, core net profit stood at RM24.6m (>100% YTD) on the back of revenue of RM200.5m (-32.4% YTD). The results were above our expectation accounting for 82% of our full-year FY18 projections. The performance was attributed to i) increased revenue recognition from marine transport services due to new charter hire fees derived from FSU Nautica Muar and Nautica Gambir despite no revenue contribution from the EPCIC business during the period, and ii) absence of higher EPCIC costs seen in corresponding period last year due to additional request for works from the client. We are leaving our forecasts unchanged and anticipate its earnings outlook will be supported by RM862.2m orderbook in hand and a tender book of c. RM1bn. We maintain our Outperform rating and a TP of RM0.73. Our valuation is premised on a PE multiple of 10x over FY19 EPS of 7.3sen.

  • Earnings expectations. We expect the Group to deliver strong results in 4QFY18 as well given no scheduled dry-docking activities in the quarter. Quite a number had been done in 1HFY18 while we estimate there were 1 or 2 in 3Q.
  • Outstanding orderbook remains healthy. EAT’s outstanding orderbook in hand stands at RM580m with additional RM282.3m for extension. We have assumed combine orderbook of RM862.2m in our forecast as we believe clients will exercise the extension options given the Group’s good track record and business relationship. This translates into 3.9x of marine operations’ revenue as of FY17. Furthermore, we understand that the group has submitted various tenders amounting to about RM1bn.
  • View and valuation. We maintain our Outperform rating and a TP of RM0.73, providing an upside potential of 49%. Our valuation is premised on higher multiples of 10x on the back of i) strong earnings visibility up to 3 years supported by solid outstanding orderbook of RM862.2m, ii) robust FY18-19 earnings outlook, iii) strong potential of securing new contracts from its RM1bn tenderbook, iv) defensive business nature with minimal risk exposures to oil price fluctuations, and v) relatively healthy balance sheet supported by its 76% long-term contracts.

Source: PublicInvest Research - 26 Nov 2018

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