Results

1Q14 core earnings (adjusted for RM5.9m forex loss) was up 12% yoy and recovered from RM0.5m loss in 4Q13, making up 27% and 22% of ours and streets’ forecasts respectively.

Deviations

None.

Dividends

None for 1Q, as is customary.

Highlights

QoQ... Following a disappointing 4Q13 (which we attribute to slower construction and property billings, and provisions made in the construction), revenue posted a strong sequential recovery (+67% qoq), as progress billings for construction and property normalised (+40% qoq and +287% qoq respectively).

YoY... Topline and bottomline were weaker yoy due to weaker performance from the local division of the construction segment. However, operating earnings for the property division remained stable yoy.

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 RM2.26 based on unchanged 14x average FY13-14 earnings. Subject to revision post analyst briefing

Source: Hong Leong Investment Bank Research - 23 May 2014