Results

Above expectations: FY13 Core Profit dropped 20% yoy to RM47m, making up of 110% and 96% of HLIB and consensus full year estimates, respectively.

Deviations

Improved due to prudent cost management and higher margin projects from O&G segment.

Dividends

Declared cash dividend of 2 sen per share and special share dividend on the basis of 1:150 or 1.3 sen per share based on closed price of RM1.99.

Highlights

4QFY13 revenue surged 19% qoq mainly due to commencement execution of new pipe projects (RM627m contract from StateOil and RM232m contract for North Malay Basin) in 4Q13. YoY, 4QFY13 operating margin improved from 3.7% to 9.5% due to higher margin from oil and gas projects and prudent cost management.

Revenue for renewable division fell in 4Q13 but offset by higher margin product mix. The company expect this segment to continue benefit from a buoyant regional oleochemical and local O&G market.

We understand the company has secured 2 new projects from Exxon Longford and DBP Wheatstone collectively worth around RM161m in 1QFY14. Total orderbook currently stands at RM1.7bn (1x of FY13 revenue) with 75% from oil and gas division, 16% from renewable energy and 9% from industrial trading & services. The company is tendering RM4bn worth of job with 80% from O&G division.

Plantation segment remain in the red due to initial start-up cost. The company plans to plant another 7,500 hectare in 2014-2016. We expect plantation division to remain in the red in near future. Its associate, Petra Energy was in loss making due to lower contributions from topside maintenance, HUC jobs and onshore civil engineering services.

Risks

• Political risk, Congo Oil Palm Plantation.
• Execution risk.

Forecasts

Unchanged as we already factored in margin improvement for O&G business in our FY14 and FY15 earnings forecasts.

Rating

HOLD

Positives –

• Infrastructure growth related to new fields.
• Strong balance sheet and acquisition record.

Negatives –

• Acquisition fuelled growth - volatile in downturns.
• Capex burden developing Congo oil palm.

Valuation

Maintain HOLD call and TP of RM1.81 based on unchanged 12x FY15 EPS of 15 sen/share.

Source: Hong Leong Investment Bank Research - 26 Feb 2014