Results

• Inline: 1QFY15 core profit fell 5% YoY, making up 17% of HLIB and consensus full year estimates, respectively.

Deviations

• As comparison, 1QFY14 was 16% of FY14 earnings.

Dividends

• None.

Highlights

• 1QFY15 revenue increased by 8% YoY mainly due to contribution from Polared project. The whole project is expected to be completed in May 15. However, core profit (excluding provision made, forex gain and impairment loss) fell by 5% YoY.

• QoQ, total orderbook remained unchanged at RM1.2bn (59% from oil and gas division, 25% from renewable energy and 16% from industrial trading & services). The company has secured total of RM260m pipeline contracts from Pengerang and others.

• The latest tenderbook is about RM5bn with 80% 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.

• Potential exercise to spin off non O&G asset to unlock value might not materialize in the near term given current market sentiment.

• Plantation division still in gestation period and will remain in the red over 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 with unchanged TP of RM1.39 based on unchanged 9x FY16 P/E.

Source: Hong Leong Investment Bank Research - 26 May 2015