Results

• Below: 2QFY15 core profit fell 72% YoY, bringing 1HFY15 to RM31m, making up 27% of HLIB and consensus full year estimates, respectively.

Deviations

• This is mainly due to lower than expected contribution from O&G segment.

Dividends

• Declared interim dividend of 2 sen/share (versus our full year forecast of 4 sen/share).

Highlights

• 2QFY15 revenue fell by 30% YoY mainly due to lower contribution from O&G, renewable and industrial trading. O&G was lower due to decline activities in the industry amidst low oil price. Polared project was completed in May 15.

• Year to date, the company has secured about RM800m contracts from Pengerang and other segments. QoQ, total orderbook decreased slightly from RM1.2bn to RM1bn (47% from oil and gas division, 30% from renewable energy and 23% from industrial trading & services).

• The latest tenderbook is about RM4.3bn with 72% 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 RM520m is a concern as it can only sustain for about a year.

• We also understand that around 92% of borrowing is in US dollar but naturally hedged as its revenue is also denominated in US dollar. Potential exercise to spin off non O&G asset to unlock value might not materialize in the near term given current market sentiment.

Risks

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

Forecasts

• FY15 and FY16 earnings reduced by 36% and 27% respectively after factored in lower contribution from O&G segment.

Rating

• Sell

Positives

• Strong balance sheet and acquisition record.

Negatives

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

Valuation

• Given the challenging market outlook coupled with weakening result, we downgrade the stock from Hold to Sell with TP reduced from RM1.39 to RM1.01 based on unchanged 9x FY16 P/E post earnings downgraded.

Source: Hong Leong Investment Bank Research - 1 Sep 2015