Journey to Wealth
Formis Resources - Remains operationally sound HOLD
' We maintain Hold on Formis Resources Bhd (FRB), with a lowerfair value of RM0.83/share (vs. RM0.90/share previously) , based on a downwardrevised FY12F core EPS of 7.5 sen on a PE of 11x ' three notches below its3-year average rolling forward PE of 14x.
' FRB posted a net profit of RM8.2mil (+42% YoY), which representedonly 52% of our previous net profit forecast of RM15.9mil. However, excluding aone-off charge of RM4.5mil booked earlier in 2QFY12, the 9MFY12 bottomline wouldhave made up 80% of our earlier forecast and hence, within expectations. Nodividend was declared.
' Given the off-charge for a foreseeable loss in a project,we have cut FY12F net profit to RM9.5mil (-68% vs. our earlier forecast ofRM15.9mil). Our FY13F and FY14F earnings are cut by 22% and 17%, respectively,to factor in a potentially more challenging operating environment ahead.
' For 3QFY12, FRB posted a net profit of RM0.6mil (+253% QoQ;-63% YoY) on the back of a lower revenue, by -26% QoQ and -15% YoY.
' 3QFY12's EBIT margin fell 0.9 of a percentage point (ppt)to 4.4% from 5.3% in the previous quarter, but was up 1.7ppts from 2.7% a yearearlier. These numbers signify that FRB remains sound operationally, but arestill subject to significant earningsvolatility.
' For the 9MFY12 up till 31 December, FRB had secured new jobsamounting to about RM206mil vs. RM196mil in the previous corresponding period.As at 31 December 2011, its outstanding order book amounted to RM118mil.
' We understand that in the pipeline are jobs valued to the tuneof over RM1.2bil, and the company has tendered for RM700mil-RM800mil worth ofcontracts.
' We are maintaining our new job assumption to the tune of betweenRM300mil and RM350mil annually, given the strong job pipeline amid increasingpressure on the public and private sector to chase after technologicalefficiency amid an increasingly tough economic climate.
' We understand that FRB is waiting for the government's decisionon the tenders for the maintenance job for the first phase of the government'se-court project as well as the second phase contract. It has been reported thatthe second phase of the e-court project could be worth between RM150mil andRM250mil.
Source: Amesecurities
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