Uzma’s 5QFY17 core profit of RM8.3m was below both HLIB and consensus estimates. Core profit increased 10.8% yoy mainly due to lower operating expenses and lower finance costs. The current order book of the group stands at c.RM1.8bn and tender book at c.RM7bn. Going forward the company is focusing more on bidding for high margin jobs. However, major part of the group’s order book 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. We reduced 18MFY17, FY18 andFY19 earnings forecast by 13.0%, 29.3% and 24.4% respectively after imputed lower revenue and higher finance costs assumptions. Maintain HOLD recommendation with lower TP of RM1.04 (from RM1.46) post earnings forecast and balance sheet model adjustment.

Results below expectation. 5QFY17 core profit came in at RM8.3m, bringing 15MFY17 core profit to RM27.6m, achieved 63.1% of HLIB forecast for 18MFY17 and 61.2% of consensus. The weaker than expected results were mainly due to lower than expected revenue attributable to lower project recognition and higher than expected finance costs. The group changed its financial year end from 31 December to 30 June.

YoY: Despite lower revenue achieve, core profit increased 10.8% to RM8.3m mainly due to lower operating expenses and lower finance costs

QoQ: Similarly core profit increased 6.8% mainly due to lower operating expenses, partially offset by higher finance costs.

Outlook. The current order book of the group stands at c.RM1.8bn and tender book at c.RM7bn. Going forward the company is focusing more on bidding for high margin jobs. However, major part of the group’s order book is on call up basis and the group’s recovery hinges on the actual demand of clients which is starting to recover in the near term due to the increase in oil price

Forecast. We reduced 18MFY17-FY19 earnings forecast by 13.0%, 29.3% and 24.4% respectively after imputed lower revenue and higher finance costs assumptions.

Maintain HOLD, TP: RM1.04. Maintain HOLD recommendation with lower TP of RM1.04 (from RM1.46) post earnings forecast and balance sheet model adjustment. TP is pegged to unchanged FY18 PER of 12x. 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.

Source: Hong Leong Investment Bank Research - 31 May 2018