Results

• Earnings disappoint: 4Q16 loss came at RM117m, bringing FY16 core net loss to RM99m, below ours (RM23m profit) and consensus (RM26m profit) forecast.

Deviation

• Due to loss from the Asia & Oceania segment caused by Kuantan project losses and unexpected high logistics costs.

Highlights

• YoY : Core loss of RM117.0m is registered in 4Q16 against core PATAMI of RM89.0m in 4Q15 mainly due to (i) weak Asia & Oceania segment on the back of Kuantan operation losses and unexpected high logistics costs and (ii) higher Americas losses due to lack of work orders post slump in Canadian oil sand activities.

• QoQ: Core earnings reverted into loss in 4Q16 from 3Q16 (RM1m profit) dragged by (i) higher losses from Asia & Oceania segment (ii) larger losses from Americas segment due to oil sands slump.

• YTD: FY16 core net loss was at RM99m vs. RM89m profit in FY15 due to (i) huge losses from the Asia & Oceania segment on the back of unexpected additional logistics costs driven by project requirements and (ii) losses from Americas segment caused by low activities in the Oil sands area.

• Asia Oceania segment is expected to recover to at least breakeven level in FY17 as the company does not anticipate additional logistics costs to be incurred as the specific project has been completed.

• The group expects to see its Thailand bio ethanol project to contribute 9 mths in FY17 with an estimated PAT of RM15m. Loan has already been drawn down for the project and earnings contribution is expected to kick in 2Q17.

Forecast

• Cut our FY17/18 forecast by 17.5/18.5% to account for lower earnings from Asia Oceania segment. Note that Thai ethanol contribution has been factored into the earnings.

Rating

• SELL

• While earnings are expected to recover in 2017 (due to maiden contribution from Thai bioethanol), it is not sufficient to get us turning for positive on the stock. Lack of job in Americas is expected to persist in 2017 while job replenishment prospects in Asia Oceania division remains bleak.

Valuation

• We downgrade the stock to Sell from Hold call with lower target price of RM0.32 (from RM0.38) based on unchanged 11x CY17 P/E post earnings revision.

• Our TP has yet to factor in value from EnergyPark Peterborough renewable energy project.

Source: Hong Leong Investment Bank Research - 27 Feb 2017