Results

• Pesona reported 4QFY16 results, displaying revenue of RM105.8m (+3% QoQ, +165% YoY) and earnings of RM4.4m (+13% QoQ, +73% YoY). This brings full year FY16 earnings to RM20m, soaring +71% YoY.

Deviation

• FY16 earnings were above expectations at 107% of our full year forecast. The stronger than expected results was due to higher other income. This was attributed to interest earned from the current UNIMAP hostel concessionaire, for construction works that was initially funded by Pesona prior to the former getting financial close.

Dividends

• Final DPS of 1 sen was declared, bringing the full year sum to 2 sen, which is double that of last year.

Highlights

• Execution gains traction. The strong 52% YoY jump in FY16 revenue was due to contributions from residential building projects in Cyberjaya (3rd Avenue SOHO) and KL (The Mews and GenKL). Earnings growth for FY17 is likely to be driven by newer projects such as Eaton Residence (RM402m) and Central Plaza@iCity (RM488m).
• Backed by sizable orderbook. Pesona?s new job wins for FY16 stood at a record RM1.8bn (FY15: RM584m). This brings its orderbook to RM2.1bn, translating to a superior cover ratio of 5.4x on FY16 construction revenue. Looking forward, management is comfortable to secure RM500m worth of new jobs this year.
• Closing in on acquisition. We gather that Pesona is close to concluding its 70% stake acquisition in SEP, the eventual concessionaire of the UNIMAP hostel. The only outstanding matter for the acquisition to push through is the Certificate of Acceptance (CoA). We reckon that the CoA could be issued very soon as (i) the hostel is already operational and (ii) defect works have largely been completed. On a 100% basis, the UNIMAP hostel is expected to generate earnings of RM12m p.a.

Risks

• Delays in the acquisition of SEP.

Forecasts

• Although the results were above expectations, we maintain our earnings forecast as we choose to remain conservative. Rating Maintain BUY, TP: RM0.81
• Pesona offers investors exposure to a pure construction play with an incoming stream of recurring earnings. Its financials are solid with strong earnings growth, increasing ROE and net cash positon.

Valuation

• Our SOP based TP of RM0.81 implies FY17-18 P/E of 16.9x and 10.9x which we reckon is fair for a pure construction play in an earnings upcycle with concession exposure.
• The impending issuance of 39.5m shares at RM0.70/share (to acquire SEP) should set a new minimum benchmark valuation for the stock.

Source: Hong Leong Investment Bank Research - 27 Feb 2017