Period   1Q12

1Q12 net profit of RM78.3m was broadly within expectations. This makes up 22% of ours as well as the street's FY12 full-year estimates of RM349.5m and RM356.8m respectively. 

Dividends  No dividend was declared as expected. 

1Q12 net profit surged 69% QoQ, led mainly by new projects such as Tapis EOR (50% completion for Q topside from 39%, and 30% for R topside) and Telok Gas Project (40% from 19%). This led to the EBIT for the Engineering and Construction (E&C) segment almost doubling to RM65.8m from RM33.2m. However, the Marine Conversion & Repair (MCR) unit reported a 36% decline in EBT to 10.3m on margin compression due to poor market condition although the number of vessels being repaired was maintained at 20.

YoY, 1Q12 net profit dipped 39% from RM128.6m as EPCIC Turkmenistan Block 1 project has been completed. Hence, the associate income  declined  to  RM1.1m  from  RM23.6m previously. Meanwhile, E&C reported EBIT which contracted 33% but MCR turned profitable (RM10.3m) from a loss making (-RM14.1m) position previously.

Orderbook declined to RM2.36b as at Mar 2012 from RM3.09b three months ago.

Outlook  Lacking of catalyst to boost earnings in the shortterm, as its project execution and replenishment are prone to delays. The stock's valuation is also susceptible to a de-rating after the listing of Sapura Kencana Petroleum. 

Change to Forecasts No changes in our FY12-FY14 estimates.  

Rating  MAINTAIN UNDERPERFORM

Valuation   We are revising our fair value up to RM4.65 from RM4.26 previously as we roll forward our valuation basis to FY13. However, we have revised our target PER lower to 18.0x (from 19.5x) as we believe the stock will be de-rated once Sapura Kencana Petroleum is listed given the lack of upside factors for the stock. The premium against the sector's average PER of 15.0x is due to its Petronas patronage status which guarantees it a certain degree of contract replenishment.

Risks  Risks to our call are higher-than-expected project wins and acceleration in project executions.