Results

1HFY14 revenue of RM392.3m came relatively in-line with ours estimates (46%) but PATAMI of RM8.7m came in slightly below expectations, accounting for 43.6% of ours full year forecasts.

Against consensus, both revenue and PATAMI came in-line, accounting for 46.9% and 47.3% respectively of full year forecasts, respectively.

Deviations

Lower-than-expected margins for 1HFY14 due to poor performance back in 1QFY14.

Dividends

None.

Highlights

Yoy review… 2QFY14 revenue slipped marginally by 3% but PATAMI was flattish yoy, as the lower effective tax rate of 18.2% have partially offset the margin compression along with the completion of certain projects subsequent to the corresponding quarter.

Qoq review... Despite revenue dropped 2% qoq, PATAMI grew by 3.8x, thanks to the impressive contribution from its property development division. The division experienced margin expansion by 14-ppts to 25%.

Earnings visibility... Outstanding order book reaches to an estimated amount of RM1.8bn, translating to ~2.3 x FY13’s revenue and 7.5x order book-to-market cap ratio. Order book of circa RM1.8bn is inclusive of its latest win from Public Works Department Malaysia (JKR), to construct and complete The Proposed Refurbishment and Upgrading Works for Parliament House of Malaysia (Phase 3B) for RM191m.

Focusing on execution… Management will have to remain focused in executing its RM1.8bn outstanding order book and consistently deliver earnings.

Risks

• Single project concentration and execution risk in the LRT project;
• Regulatory and political risk;
• Rising raw material prices; and
• Unexpected downturn in the construction sector.

Forecasts

Unchanged as we foresee the recovery in margin to flow through into 2HFY14.

Rating

HOLD

Given the concern on the potential cost overrun for some ongoing construction project, we choose to be conservative on margin assumption while waiting for consistent earning delivery.

Valuation

Maintain HOLD with unchanged target price of RM0.57 based on unchanged 12x average FY14-15 earnings.

Source:Hong Leong Investment Bank Research - 28 Aug 2014