Results

1HFY13 core earnings (adjusted for RM17.3m forex gain and RM5.2m disposal loss) grew by 16% to RM87.7m (8.3 sen/share), making up 48% of our forecast but missed streets’ estimates by making up 43%.

Deviations

Largely in line.

Dividends

Net dividend of 3.5 sen/share declared, which is higher than previous corresponding payout of 3.26 sen/share (adjusted for 3-for-20 bonus issue). Ex-date on 10 Sep-13, payment on 26 Sep-13.

Highlights

YoY… Revenue in 2Q jumped by 22% mainly due to rebound in construction and property development activities as the construction division had a relatively slow year in FY12. During the quarter, the property division’s operating profit fell by 33% to RM18.4m due to higher expenses.

Overall, 2Q’s core earnings grew by 58% YoY to RM45.9m (4.21 sen/share) on the back of revenue growth and margin expansion. However, it is important to note that 2QFY13’s growth was coming from a low earnings base posted in the previous corresponding period.

QoQ… Revenue dipped slightly by 2% QoQ largely due to lower construction revenue which dipped by 8%. Core earnings however grew by 10% due to lower effective tax rate arising from lower tax rate for Middle East projects.

1HFY13… Revenue jumped by 32%, underpinned by a strong rebound in construction activities and strong property billings. However, property investment revenue was flat as revenue contribution from Paradigm Mall has been reclassified to equity accounting. Overall, core earnings grew by 16%, boosted by stronger performance in all divisions.

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:

• Major contract wins;
• Growing property investment income;
• Strategic land banking exercise;
• Listing of property division.

Negatives:

• Failure to secure new sizable projects;
• 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 Aug 2013