Results

Broadly Inline: YoY, 1QFY14 Core Profit swung from losses to RM21m, making up of 22% and 20% of HLIB and consensus full year estimates, respectively.

Deviations

We expect stronger quarter earnings ahead due to higher contribution from O&G which command higher margin.

Dividends

None.

Highlights

YoY, 1QFY14 Core earnings swung from losses to RM21m mainly due to commencement execution of new pipe projects (RM627m contract from StateOil’s Polarled and RM232m contract for North Malay Basin) since 4Q13. Polarled and North Malay Basin projects are progressing well and expect to complete in 2015 and June 14 respectively.

The company has secured RM137m new order for O&G segment in 1Q14. Total orderbook remain unchanged at RM1.7bn (74% from oil and gas division, 15% from renewable energy and 11% from industrial trading & services) as compared to 4Q13 as the burn rate was offset by the orderbook replenishment. The company is tendering RM4bn worth of job with 80-90% from international.

Renewable divisionPBT increase in 1Q14 due to higher number of projects which benefited from buoyant regional oleochemical and local O&G markets. However, industrial trading PBT remains weak due to low volume of high margin products and absence of any significant projects for pipe manufacturing.

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 performed poordue to weak margin from marine support service in relation to modification expenses incurred for a vessel to meet client’s specifications.

Risks

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

Forecasts

Unchanged.

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 raise from RM1.81 to RM1.96 based on higher PER of 13x (vs. 12x previously given more visibility on the earnings turnaround) on FY15 EPS of 15 sen/share.

Source: Hong Leong Investment Bank Research - 28 May 2014