• 4QFY18 earnings fell 7.8% yoy while FY18 earnings more than halved mainly on depleting construction orderbook and margin pressures at its manufacturing units.
• • While FY18 pretax earnings were broadly inline with our forecasts, net earnings were only 86.3% of our full year forecasts due to the higher-than-expected effective tax rate.
• • It proposed a 12sen final DPS which brings total DPS to 20sen, as per our FY18 expectations.
• • We stay cautious on its outlook amidst the challenging domestic construction and property sectors. We are also negative on its plan to acquire a Singapore unit owing to unattractive valuation.
• • HOLD with RM2.35 TP. Despite its challenging prospect, we believe its strong cashpile could still sustain annual DPS of 20sen.

Earnings remain weak

4QFY18 earnings remain weak, declining 53.6% qoq and 7.8% yoy to RM3.0m due to depleting construction orderbook which would only last for the next few months. The manufacturing segment continue to face margin pressures primarily due to higher tinplate cost.

Met dividend expectation despite of short of earnings

Overall, FY18 earnings more than halved (-58.3%) to RM15.1m. Still, its FY18 DPS matched the 20sen declared in FY17 owing to strong financial which stood at RM211.5m at end Jun 2018. This implies 8.0% dividend yield at current price level.

Impacted by higher effective tax rate

While pretax profit was inline with our estimates, net earnings trailed our estimates at 86.3% owing to higher-than-expected effective tax rate.

Cautious prospect

Management expects FY19 to be another challenging year due to the government’s rolling back on infrastructure spending as well as the prolonged softening property market. We also view the proposed acquisition of Pintary International, a Singapore unit, is expensive from valuation stand point and could deteriorate its balance sheet.

Maintain Hold with TP of RM2.35

HOLD with an SOP-derived RM2.35 TP. Despite its challenging prospect, the stock currently implies 8.0% dividend yield based on our 20sen DPS assumption. We believe this could be a fair compensation amidst the temporary slowdown in the sector.

Source: BIMB Securities Research - 29 Aug 2018