Results

1QFY13 core earnings (adjusted for RM6.6m forex gain) fell by 21% to RM36.6m (3.6 sen/share), making up 20% and 18% of ours and streets’ estimates respectively.

Deviations

Considered largely in line as we expect stronger earnings in the subsequent quarters while 1Q is normally seasonally weaker.

Dividends

None. Dividends usually declared in 2Q and 4Q.

Highlights

YoY… Revenue jumped by 44%, underpinned by a strong rebound in construction activities, doubling of property billings and higher rental income. However, the performance of core earnings was another story as it contracted by 21%. This is mainly due to the Dukhan Highway arbitration impact which affected the construction division’s earnings.

QoQ… Although 1Q should be seasonally weaker, revenue grew by 29%, lifted by the construction division while the other divisions posted seasonal revenue weakness. Nonetheless, sequential earnings growth still fell by 5%.

Risks

• Execution risk;
• Regulatory and political risk (both domestic and overseas);
• Rising raw material prices;
• Unexpected downturn in the construction and property sector; and
• Failure in securing new sizable construction contracts.

Forecasts

Unchanged. Pending analyst briefing later today.

Rating

HOLD

• Positives: (1) Major contract wins; (2) Growing property investment income; (3) Strategic land banking exercise; (4) Listing of property division.
• Negatives: (1) Failure to secure new sizable projects; (2) Slower than expected take up rate for property launches.

Valuation

• TP maintained at RM2.41 based on unchanged 14x average FY13-14 earnings. Subject to revision after analyst briefing.

Source: Hong Leong Investment Bank Research - 23 May 2013