Its 1QFY18 earnings fell 71.6% yoy to RM3.8m as the construction division continues to reel from its poor orderbook replenishment rate in FY17. Construction revenue declined 78% as a results. This was exacerbated by manufacturing division which was impacted by higher input costs and weak demand. At pretax level, earnings declined 76% yoy although this was partially mitigated by lower effective tax rate on higher utilization of deferred tax assets.
Pintaras performed better on qoq basis with earnings rising by 15% qoq. While 4QFY17 earnings was boosted by a positive tax charge, the ‘rebound’ in 1QFY18 only matched the earnings run rate in FY16 where it was also faced with a low replenishment of orderbook after a strong performance in FY14 and FY15.
We make no changes in our estimates as we expect some earnings respite in coming quarters. Management guided for a stronger 2HFY18 as more jobs are recognized. We also expect orderbook to be replenished amidst rising demand for affordable dwellings while major infrastructure job packages (ie. LRT 3, MRT 2) have been mostly awarded. Elevated steel prices could also safeguard margins as we continue to believe that Pintaras’ strong rapport in the piling subsector could be an edge over its peers.
Maintain HOLD with an RM3.80 SOP-derived TP. Our TP implies FY18F PE of 15.7x before easing to 12.4x in FY19F.
Source: BIMB Securities Research - 27 Nov 2017
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