Results

• Below: 2QFY15 core profit fell 24% YoY, bringing 1HFY15 core profit to RM40m, making up 32% our and consensus forecast. Deviation

• Profit has yet to be recognised for the RAPID project due to its early stage of fabrication.

Highlights

• 2QFY15 core profit after excluded RM1.3m share based payment and defers tax of RM1.4m fell 24% YoY mainly due to profit has yet to be recognised for the RAPID project given its early stage of fabrication. Gross profit margin remains stable at 20%.

• We understand that 3Q result will be better than 2Q as contribution from RAPID project will be gaining momentum in 2H15.

• Total contract win from RAPID currently is around RM1.2bn. We understand the company is confident to secure circa RM600m related contract in near future. We believe our assumption of RM2.2bn contract wins from RAPID over 4 years is fairly achievable.

• De-leveraging exercise continue to prevail with current ratio increased from 1x to 1.4x and net nearing at 0.23x. With the lesson learned from the 2008 global financial crisis, we believe the measures of de-leveraging and strengthening its balance sheet will help to gain investors’ confidence.

• In addition, the completion of acqui ring Thailand’s ethanol business should add RM22m to bottomline in FY16 for Phase 1. Potential Phase 2 will double the capacity with capex estimation of 50% of Phase 1.

Forecasts

• FY15 and FY16 EPS reduced by 27% and 16% respectively mainly due to the timing di fference in profit recognition for its contracts.

Catalysts

• i) Announcement of more RAPID contract win; ii) Commencement of EnergyPark Peterborough; and iii) Relisting of Borsig to unlock value.

Risks

• Fluctuation in oil price; Project execution ability; Delay in contracts award.

Valuation

• We maintained our BUY call with target price adjusted from RM0.80 to RM0.67 based on unchanged 11x P/E post earnings downgraded.
• Our TP have not yet factored in value from EnergyPark Peterborough and Thailand’s renewable energy business.

Source: Hong Leong Investment Bank Research - 27 Aug 2015