Ahmad Zaki's (AZRB)FY11 earnings of RM12.1m fell short of our expectations and only met 58.9% of our full-year estimates on theback of weakness in both its construction and bunkering divisions. With that,we are turning slightly cautious on its future prospects and hence, we arelowering our FY12 and FY13 core earnings forecasts by 6.0% and 3.1%respectively. Downgrade to NEUTRAL and our FV now stands at RM0.91 based on anunchanged FY12 PER of 10x.
Significantly belowestimates. AZRB's FY11 revenue surged 23.7% y-o-y to close at RM533.7m, driven by higher contributionfrom its construction division which registered a 25.8% jump to RM469.1m.Nonetheless, its core earnings of RM12.1m (+>100% y-o-y due to losses inFY10) still fell short of our expectations by coming in at 58.9% of our full-year estimates. Our estimates have previously accounted for abetter showing from its bunkering division, which actually registered a dip of30.2% at the EBIT level, as well as some margins improvement for itsconstruction segment, which also did not materialize. On a quarterly basis,4QFY11 topline and core earnings came in at RM141.0m and RM2.9m respectively,dragged down by its bunkering division's subpar performance.
Subpar margins themain concern. On a positive note, AZRB is currently sitting on a comfortableorderbook of RM1,978m with the bulk ofit coming from the RM765m v6 MRT package, RM160m University Darul Iman Package3 building works and construction of the RM413m International IslamicUniversity Malaysia Teaching Hospital in Kuantan. Nonetheless, we are turningcautious on its execution track record in view of its below-averageconstruction margins as well as early indications of potential weakness in itsbunkering division. With that, we are downgrading our core earnings forecastsby 6.0% for FY12 and 3.1% for FY13.
Downgrade to NEUTRAL.All in all, we are taking a more conservative stance on AZRB for now given thedisappointing set of results, which webelieve could point to further executionrisks in light of the volatility of its past earnings. Hence, we downgrade ourcall from Trading Buy to NEUTRAL with our FV now standing at RM0.91 based on anunchanged FY12 PER of 10x.