• 4QFY19 core earnings fell 20.5% yoy on lower delivery of MyKad. Earnings were further dragged by higher depreciation and taxation during the quarter.

• Qoq, core earnings fell 1.4% due to lower delivery of passport datapages.

• Overall, FY19 core earnings were inline with ours but trailed consensus’ estimates at 103% and 94% respectively. We remain cautious over the MyKad segment as we note order flows from the government has been inconsistent.

• Maintain HOLD at DCF-derived TP of RM0.43. Despite its outstanding orderbook of c.RM743m offers visibility up to FY21F, we are cautious on earnings delivery. Sell on strength.

Mainly due to lower MyKad delivery

4QFY19 core earnings fell 20.5% yoy to RM11.6m on lower delivery of MyKad (4QFY19: 200k units, 4QFY18: 1mil units). We note that the government purchase have been inconsistent, possibly drawing down on existing inventories. Earnings were further dragged by higher depreciation, taxation and sales of low margin products. As a result, EBITDA margin contracted by 254bps to 32.3% from 34.9%.

Lower passport datapages delivery

On qoq basis, core earnings fell slightly 1.4% in tandem with 0.1% decline in revenue. This was due to lower delivery of passport datapages of 516k units (3QFY19: 605k units) during the quarter.

Underperform MyKad segment

FY19 core earnings were down by 41.6% to RM39.4m mainly due to lower MyKad delivery and MyKad consumables. To recap, there was no MyKad delivery to the government for three consecutive quarters (9-month) as the government drawdown on inventories. In 4QFY19, the MyKad orders resumed with 200k units delivered. However, we are cautious on earnings delivery over MyKad given inconsistent order flows from the government. Overall, FY19 core earnings were broadly inline with ours but below consensus’ estimates at 103% and 94% respectively.

Dividend declared

A fourth interim DPS of 0.5sen was declared, implying a 92% dividend payout. Overall, the FY19 DPS declared amounts to 2.5sen (FY18: 4sen) was trailed our expectation at 63%.

HOLD at TP of RM0.43

Maintain HOLD at DCF-derived TP of RM0.43 (WACC: 11%, g: 0%) which values the stock at FY19/20F PE of 15x/9x. Despite its outstanding orderbook of c.RM743m providing earnings visibility of up to FY21F, we see downside risk to earnings.

Source: BIMB Securities Research - 3 Jun 2019