Results

• In line: 4Q17 core profit came in at RM7.7m, bringing FY17 core profit RM19.3m, in line with HLIB but below consensus, accounting for 101.5% of HLIB and 61.5% of street estimates.

Deviation

• None.

Dividends

• None.

Highlights

• YoY: Core profit surged 166.7% mainly due to significant improvement in gross profit margin on higher margin of work done. Going forward the company is focusing more on bidding for high margin jobs and hence we opine that current level of profit margin is sustainable.
• QoQ: Profit increased 248.5% underpinned by stronger services segment EBIT due to ramp up in work orders and higher margin of work done.
• FY17: Core profit dropped 18.3% dragged by (i) slowdown in work orders for services division, (ii) weaker volume achieved for the trading division upon non extension of chemical contract customers, and (iii) significantly increased in operating expenses incurred due to preparation for ramping up of contracts.
• The current orderbook of the group stands at c.RM2bn and tenderbook at c.RM7bn.
• However, major part of the group’s orderbook is on call up basis and the group’s recovery hinges on the actual demand of client which is starting to recover in the near term.

Risks

• Delays in contract disbursement.
• Execution risk.

Forecasts

• Maintained.

Rating

HOLD (↔)

• While 2017 earnings outlook is gloomy, we believe recovery will be in place in 2018 with ramp up in works for services division expected for the contracts secured by the group in 1H17.

Valuation

• Maintain HOLD with lower TP of RM1.46 (from RM1.64) pegged to unchanged FY18 PER of 12x after 10% share base dilution adjustment.

Source: Hong Leong Investment Bank Research - 28 Feb 2018