Results

• Deemed within expectation: 3Q17 core profit came in at RM20.7m, bringing 9M17 core profit to RM10.2m (-73.9% yoy). It is deemed within HLIB (-RM25m) and consensus estimates (-RM7.8m) as we expect 4Q17 to revert back to losses due to expectation of lower revenue amid lower work orders.

Deviations

• None.

Highlights

• YoY: In 3Q17, core profit of RM20.7m was posted against core loss of RM1.8m in 3Q16 due to finalization of several offshore projects. Marine division recorded lower operating profit due to lower revenue.
• QoQ: Core profit of RM20.7m was recorded against loss of RM9.8m in the preceding quarter due to completion of offshore projects resulting in lower operating losses.
• 9M17: Core PATAMI plunged 73.9% due to (i) lower work orders for Offshore division dragged by lack of orderbook replenishment, and (ii) weaker marine division performance as value of vessels repaired was lower.
• Most of the group’s major projects have been completed or in the final stage. Replenishment of orderbook remained slow due to lack of contract award by oil majors.
• While the group does not face cash flow issue, its earnings visibility has worsened for FY18 which gives rise to heightened uncertainties to the group.
• Its marine division is expected to continue anchoring the group’s earnings. However, 2018 outlook appears to be flattish post the end of MISC’s LNG fleet maintenance cycle last year.
• Its current cash pile would be utilised to fund the construction of its dry dock 3 to further expand its capabilities of the dry dock system.

Risks

• Project execution risk and orderbook replenishment risk.

Forecasts

• Maintained.

Rating

SELL (↓ )

• ? While balance sheet is solid with net cash position, earnings visibility remains low with no major contract expected to be secured in the near term.

Valuation

• TP is maintained at RM0.67 pegging FY18 BVPS to 0.4x. Downgrade to SELL.

Source: Hong Leong Investment Bank Research - 01 Nov 2017