Results

• Pesona reported 4QFY17 results with revenue of RM90.2m (-23% QoQ, -15% YoY) and earnings of RM3.6m (-27% QoQ, -17% YoY).

• Full year FY17 revenue totalled RM548.8m (+40% YoY) but earnings was lower (-4% YoY) at RM19.2m.

Deviation

• FY17 earnings were below expectations at 79% of ours and consensus full year forecast.

Dividends

• Final dividend of 1 sen declared.

Highlights

• Delays continue to hit... We were negatively surprised by the 2 nd consecutive quarterly decline in construction revenue. Delays for some of the key projects continued into 4Q which include iCity Mall (design changes by client), West Coast Expressway (land acquisition issues) and UniZA Hospital (delay in obtaining development order).

• ...along with higher cost. Construction margins were also impacted from higher raw material costs. The construction division barely broke even in 4Q with PBT of RM0.5m. Apart from that, there was an impairment loss on manufacturing assets of RM1.7m.

• Decent orderbook level. After a drought of job wins in FY17, Pesona managed to secure a RM162m building job in Jan. Its orderbook stands at RM1.7bn, implying a cover of 3.2x on FY17 construction revenue which is decent.

• SEP contributes. On a brighter note, SEP (UNIMAP concessionaire) contributed its maiden quarter in 4Q with PBT of RM8.2m. The completion of the remaining 30% stake in SEP is targeted for 1H18.

Risks

• Low orderbook replenishment and margin drag.

Forecasts

• We cut FY18-19 earnings by 26% and 23% as we scale back on its orderbook recognition to account for delays and also lower margin assumptions.

Rating

Maintain BUY, TP: RM0.52

• While the results disappointed, we are hopeful for a recovery in FY18 as orderbook execution picks up coupled with the full year impact from SEP’s contribution.

Valuation

• With the earnings cut, our SOP based TP is reduced from RM0.70 to RM0.52. This implies FY18-19 P/E of 13.8x and 11.5x respectively.

Source: Hong Leong Investment Bank Research - 28 Feb 2018