Results

• Below expectations: 4Q17 core net profit came in at RM0.7m, bringing FY17 core loss to –RM3.3m. This was below HLIB (RM13m profit) and consensus (RM18.3m profit) full year estimates.

Deviations

• Lower than expected work order received and performed for Offshore segment and vessel charter rate for Marine segment.

Highlights

• YoY: Core net profit plunged 95.9% due to: (i) higher losses in Marine segment due to weaker vessel charter rates; and (ii) weaker HUC profits due to lower work order received and performed.
• QoQ: Profit weakened by 93.4% due to lower vessel utilization in Marine segment and lower work order received and performed in Offshore segment.
• FY17: Dipped into loss of –RM3.3m from core profit of RM19.6m in FY16 mainly due to higher losses in Marine segment as a result of lower vessel utilisation and weaker vessel charter rate. Nevertheless, stronger performance of HUC driven by higher margins arising from cost savings has helped to partially offset the Marine weakness.
• Outlook: 2018 will be a better year for the group on the back of contribution of MCM contracts (from Petronas) and ramp up in HUC contract. Marine segment is expected to achieve higher vessel utilisation as a result of higher activities in the sector.

Risks

• Political risk; Delays in contract disbursement; and Execution risk.

Forecasts

• Cut FY18-19 forecasts by 7% and 6.7% respectively to account for higher losses from the Marine segment.

Rating

BUY (↔)

• The completion of dividend in specie would remove the overhang delay of relisting of Perdana shares. This would better reflect the value of the group’s stake in Perdana. Earnings recovery is also expected in 2018.

Valuation

• Maintain BUY with lower SoP-driven TP of RM0.91 (from RM1.01) post earnings cut.

Source: Hong Leong Investment Bank Research - 26 Feb 2018