• Excluding impairment of RM9.9m, 3Q18 core PATAMI fell -47.5% yoy to RM5.9m on lower EBITDA margin. However, it increased 3.75x qoq mainly on deferred tax credit.
• • Its 9MFY18 core EBITDA and PBT were broadly in-line with our estimates at 76.4% and 71.4% respectively. The improved margin could be short-lived, in our view, as management noted extreme challenging business environment ahead.
• • We revised our revenue FY18 estimates by -30.4% to reflect the slower progress billing but pare down PBT FY19F/FY20F estimates by -15.7% / -3.7% as we take a more cautious view on its outlook.
• • Maintain SELL with lower TP of RM0.095 (from RM0.22) as we peg 8.5x PE (from 10x) to FY19F EPS, a 20% discount to sector average.

Mixed result

Excluding impairment of RM9.9m, 3Q18 core earnings fell -47.5% yoy to RM5.9m as EBITDA margin narrowed despite higher progressed billings +10.8%. On qoq basis, core earnings jumped 3.75x mainly on deferred tax credit of RM3.3m during the period. At pretax level, earnings improved 50% qoq.

Improved EBITDA margin could be short-lived

9M18 core EBITDA and PBT were broadly inline with ours and consensus estimates at 76.4% and 71.4%; this was mainly due to the surge in EBITDA margin as progress billing trailed our 2018F revenues at only 51.9%. We believe the improved margin is not sustainable as management cited tough operating landscape ahead. We believe regulatory cost could increase, possibly from increase in minimum wage.

Revised estimates on challenging prospect ahead

For FY18F, we revised revenue by -30.4% to reflect the slower-thanexpected progress billing. Despite outstanding orderbook at RM820m, we take a more conservative view on its earnings outlook; we cut 2019F and 2020F PBT by -15.7% and -3.7% respectively on the back of lower margins assumed to reflect our expectations of higher input costs.

Maintain to SELL with revised TP of RM0.095

SELL with revised TP of RM0.095 after pegging 8.5x PE (from 10x) to its FY19F EPS; this is a 20% discount to sector average to reflect its tight cashflow and strained balance sheet which relies on bank overdraft for working capital.

Source: BIMB Securities Research - 3 Dec 2018