Results

• Earnings disappoint: 3Q16 earnings came at RM1m, bringing 9M16 core net profit to RM19m, below ours (47%) and consensus (46%) forecast.

Deviation

• Further widening of losses from the Americas business due to uncertain oil sand development in Canada.

Dividend

• None.

Highlights

• YoY : Core net profit plunged by 95.2% to RM1m in 3Q16 due to wider loss from America’s business division on the back of slump in Canadian oil sands activities (loss of RM5.1m in the quarter). This is being partially offset by stronger top line from Europe due to improvement in activities.

• QoQ: Core earnings nosedived by 83.5% in 3Q16 also due to higher losses from the America’s business division as a result of uncertainty of oil sands development despite higher revenue sequentially underpinned by higher overhead costs.

• YTD: 9M16 core net profit weakened by 70.3% YoY as a result of (i) weaker YoY revenue contribution of Asia & Oceania business division due to lower progress billings, and (ii) higher loss contribution from Americas due to high project overheads and lower work orders due to lacklustre activities in the region.

• Financing for its Peterborough renewable energy project is in its completion stages while the official project kick off time is still uncertain at this juncture.

• The group is expected to see its Thailand bio-ethanol project contribute full year in FY17 with an estimated PAT of RM15m. Recent announcement of USD80m sukuk equivalent in THB has indicated financial backing for the project.

Forecast

• Cut our FY16/17/18 forecast by 42/10/9% to account for higher losses from Americas business and lower work orders in view of challenging market.

Rating

HOLD ↔

• While earnings are expected to recover in 2017 due to maiden full year contribution from Thai bioethanol and recovery in America earnings driven by cost cutting initiatives, earnings uncertainties remain and it is insufficient to warrant a rerating of the stock.

Valuation

• We maintain our Hold call with lower target price of RM0.38 (from RM0.425) based on unchanged 11x CY17 P/E.
• Our TP has yet to factor in value from EnergyPark Peterborough renewable energy project.

Source: Hong Leong Investment Bank Research - 25 Nov 2016