• 3QFY19 turned into net profit of RM21.7m against a net loss in 2QFY19 which was impacted by cost overrun and trade receivables impairment. However, earnings fell 8.3% yoy.
• 9MFY19 core earnings declined 96.5% and met 23% of our estimate. We deemed this to be in-line with estimates as we expect earnings to pick up in 4QFY19.
• We believe the rising net debt position and receivables may limit its working capital for future job prospect amidst the revival of ECRL and Bandar Malaysia.
• Maintain SELL and RM0.20 TP given its weak balance sheet which is saddled with higher net debt and receivables.

Turned into net profit

3QFY19 turned into net profit of RM31.7m against a net loss of RM34.4m in 2QFY19 which was impacted by cost overrun and receivables impairment worth RM49m. On yoy basis, net profit declined 8.3% in tandem with lower progress billings 32.6% as a result of deferment of certain infrastructure projects .

YTD net profit deemed in-line with our estimate

As a result of lower progress billings and huge losses in 2QFY19, 9MFY19 net profit is only RM2.3m (down 96.5%). Despite only making up 23% of our estimate, we deemed this to be in-line as we expect earnings to pick up strongly in 4QFY19 on the back of RM1bn outstanding orderbook which could last for 18 months.

Increasing net debt and receivables may limit its working cap

We reiterate our concern on its deteriorating balance sheet as a key fundamental setback. In 3QFY19, its cash balance has depleted by 70% to RM21.4m (2QFY19:RM70.7m).This brings its cash to current liability ratio at only 0.07x and increased its net debt to RM55m (2QFY19:RM14m). In addition, receivables remain high at RM532m, 77% of its total asset (2QFY19:74%). This heightened the possibility of receivables impairment in future as 55.4% is owed by three major clients. We believe this could impede its working capital which could be crucial to seize new project amidst the revival of mega projects i.e ECRL and Bandar Malaysia

Maintain SELL with TP of RM0.20

We maintain SELL with RM0.20 TP as it still commands a weak balance sheet is saddled with high net debt (net gearing ratio: 0.15x) and receivables. Its earnings quality remains inferior and heightens concern over possible receivables impairment albeit outstanding orderbook stands at RM1bn.

Source: BIMB Securities Research - 28 May 2019