Results

• Above Expectation: FY14 profit tripled to RM126m, making up 107% and 110% of HLIB and consensus full year estimates, respectively.

Deviations

• Due to better performance and higher margin from O&G division.

Dividends

• Declared 3.17 sen per share bringing YTD dividend to 5.67 sen (versus our estimate of 4 sen per share).

Highlights

• 4QFY14 core earnings surged by 70% YoY to RM35m mainly due to progress recognition of RM627m contract from StateOil’s Polarled. QoQ, renewable division also increased by 23% due to higher number of project executed but partly offset by slowdown in oleo chemical business.

• We understand that the Polared project is progressing well with work in Kuantan completed while work in Norway was 60% completed. The whole project is expected to be completed in May 15.

• QoQ, total orderbook fell from RM1.4bn to RM1.2bn (59% from oil and gas division, 24% from renewable energy and 17% from industrial trading & services). The company only managed to secure RM253m job in 4Q14.

• The latest tenderbook is about RM5bn with 95% related to O&G jobs. In view of the low oil price and spending cut by E&P player, we are cautious on the orderbook replenishment rate and the current O&G orderbook of RM700m is a concern as it can only sustain for about a year.

• Plantation division still in gestation period and will remain red in the next few years before breakeven. This is mainly due to initial start-up cost. The company plans to plant another 7,500 hectare in 2014-2016.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD

Positives

• Strong balance sheet and acquisition record.

Negatives

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

Valuation

Maintain HOLD call while TP adjusted from RM1.31 to RM1.39 after rolled forward valuation to FY16 based on unchanged 9x P/E.

Source: Hong Leong Investment Bank Research - 27 Feb 2015