Results

• Earnings disappoint: Reported 1Q17 core loss of -RM5m, below HLIB (+RM58m) and consensus (+RM52.3m) full year forecast. Deviation
• Weaker than expected performance from Asia & Oceania division.

Highlights

• YoY: Core loss was registered against profit in 1Q16 dragged by weak Asia & Oceania performance amidst low job replenishment while being partially offset by slight recovery in Americas division due to lower OPEX.
• QoQ: Core loss narrowed to RM5m due to significantly lower logistics cost (4Q16 logistics costs surged due to project cost overrun) and lower loss from Americas division driven by lower OPEX.
• Its Thai bioethanol project (Phase 1) has been delayed to 2H17 whilst its recently announced Phase 2 project would only commence in 2019.
• The Phase 1 bioethanol project in Thailand would help to li ft the group’s earnings in 2H17 assuming project is delivered on time.
• Both its Americas and Asia & Oceania divisions are expected to remain weak in 2017 due to lack of orderbook replenishment and weak industry outlook.
• Peterborough renewable energy project has yet to proceed due to difficulties in securing financing with no definite deadline in sight.

Forecast

• Our previous forecast is unchanged but should no longer be used as a reference as we are ceasing coverage on the stock.

Rating

CEASE COVERAGE, TP: RM0.32

• 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 prolonged delay on Peterborough renewable energy project would present share price overhang.

Valuation

• Previous TP was at RM0.32 pegged to 11x FY17 PER. Officially cease coverage on the stock due to bleak earnings outlook and lack of institutional interest. .

Source: Hong Leong Investment Bank Research - 01 Jun 2017