• 3QFY19 core EBITDA surged 46% yoy driven by its SG unit. However, on qoq basis, it marginally eased 1% following an RM13.4m impairment on trade receivables.
• 9MFY19 core EBTIDA exceeded our estimates at 109% and prompted us to raise our FY19F-FY21F estimates by 9%-133% on higher orderbook replenishment assumption.
• Notwithstanding, we throw caution on its growing receivables and depleting cash position which could pose a risk to its dividend payout; we pare down our DPS assumption by 30% for 2019-21F despite our earnings upgrade.
• SELL with revised RM1.95 SOP-derived TP after we roll forward valuations and ascribed a lower PE multiple to FY20F EPS (Table 3). This reflects our concern over increasing receivables which could limit its ability to sustain payouts.

Dragged by trade receivables impairment

3QFY19 core EBITDA increased 46% yoy on the uplift contribution from Pintary, SG unit since Sep 2018. However, on qoq basis core EBITDA marginally eased by 1% mainly due to RM13.4m impairment on trade receivables, which accounts for 7.6% of total receivables.

Exceeding expectations but concerns linger

9MFY19 core EBITDA surged 60% yoy and exceeded estimates at 109%. This was on higher progress billings especially from Pintary. We raised estimates by 9%-127% on higher orderbook replenishment assumption to RM250m p.a from RM100 p.a.

Future dividend payout could be at risk

It declared 8 sen DPS similar to previous years. However, we are concern on its sustainability to pay 20sen DPS annually due to growing receivables outstanding and depleting net cash position since the acquisition of Pintary. The outstanding receivables have grown 32% in 3Q2019 from 1Q2019 after consolidation of Pintary. This increases future impairment risk as we note that net cash position has also depleted by 30% over the same period. Hence, we pare down our annual DPS assumption by 30% to 14sen from 20sen to reflect more sustainable dividend payout in future.

Reduced to SELL and lower TP of RM1.95

We lower our recommendation to SELL and SOP-derived TP of RM1.95 after rolling forward our valuation but we pegged a lower PE multiple of 9.7x (a 30% reduction from 13.8x) to FY20F EPS. The lower of PE multiple is in tandem with the decline in its asset quality. Despite raising orderbook assumption, earnings quality has diminished in view of growing trade receivables, which risks impairments in future.

Source: BIMB Securities Research - 27 May 2019