Results

• Deemed within: 1Q16 core net profit came in at RM10.6m, making up 12.2% and 11.1% of ours and consensus forecast. We deem it within our expectations as its EPC projects on hand are still at their initial stages giving minimal profit contribution. Deviation

• None

Highlights

• 1Q16 core net profit slumped by 69.2% YoY due to several factors: (i) reported EBITDA loss of RM11.2m in the quarter from the Americas division due to uncertainties in oil sand development in North America (ii ) lower Asia & Oceania EBITDA due to higher income base in 1Q15 consisting of disposal gains from its Australian business. On the positive note, Europe has fared relatively well with YoY expansion in EBITDA due to higher project billings.

• With the upcoming commencement of Thailand ethanol business and UK Peterborough renewable energy, the company will transform from project-based earnings to more recurring income, which will be another signi ficant long term re-rating catalyst. Company has secured GBP facility from EXIM bank and hope to reach financial closing by late 2016.

• Orderbook of the group is at RM5bn (circa RM2bn from Peterborough EPCC). Stripping out Peterborough contract, effective orderbook would be at RM3bn, implying coverage ratio of 1.8x. Majority of the process equipment delivery for the RAPID is still at their early stages thereby showing lower profit contribution.

• Cont ract replenishment is expected to be slow even from RAPID as its clients are still relooking at their costs. The group has also seen one of its tender projects at advanced stage being put on hold as its main client intends to relook at the project costs.

Forecast

• Maintained as we are anticipating its EPC projects to pick up momentum in the later part of the year.

Catalysts

• i) Announcement of more RAPID contract win; ii) Commencement of EnergyPark Peterborough; and iii) confirmation of off takers for Thailand bio ethanol project.

Risks

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

Valuation

• We maintain our Hold call with unchanged target price of RM0.49 based on unchanged 11x P/E.
• Our TP have not yet factored in value from EnergyPark Peterborough and Thailand’s renewable energy business.

Source: Hong Leong Investment Bank Research - 27 May 2016