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Seremban Engineering - A strong start to the year

kiasutrader
Publish date: Fri, 18 May 2012, 04:06 PM

Period    1Q12

Actual vs. Expectations
 Seremban Engineering's ('SEB') 1Q12 net profit of RM2.1m came in well above our expectation as it made up 38% of our FY12 full year estimate of RM5.5m. 

Dividends   SEB declared an interim single-tier dividend of 2 sen on 7th  May 2012, translating into a 4% yield. 

Key Results Highlights
 SEB registered a commendable set of 1Q12 results, which was attributed to improved activities mainly in its palm oil refineries from the overseas markets (mainly Indonesia).

 Despite revenue dipping 31% QoQ, 1Q12 net earnings actually rose 34% to RM2.1m from RM1.5m in the preceding quarter. This was mainly due to better product & segment mix (i.e. palm oil refinery, Oil & Gas, waste management), which pushed its PBT margin above 10%.

 On a YoY basis, 1Q12 net earnings improved significantly to RM2.1m from just RM124,449 last year, led mainly by robust overseas sales where revenue grew by 155%, albeit the domestic sales falling by 8%. 

Outlook   SEB's prospects remain positive on the back of steady demand and increasing enquiries for its process equipment business especially in palm oil refinery and waste management. 
 In addition, contracts from the Oil & Gas sector is expected to contribute positively in the upcoming quarters. 

 SEB recently acquired a 40% stake in a new associate company - Selekta Spektra S/B (SSSB), whose principal activities are the provision of landfill services and waste management. This should improve SEB's earnings visibility further given the recurrent earnings quality of SSSB. The latter has entered into a concession agreement with Majlis Bandaraya Ipoh in Nov 2011 for a period of 9 years with an option to extend for a further 11 years.

Change to Forecasts
 Maintaining our FY12-14E net earnings of RM5.5m-RM10.1m at this juncture. Nonetheless, we may revise up our earnings estimates should SEB records another set of sterling results in 2Q.

Rating  MAINTAIN OUTPERFORM

Valuation    We are maintaining our OUTPERFORM recommendation on SEB with a target price of RM0.55 based on 8.0x FY12 PER (in line with our small cap coverage's average forward PER of 8.0x).

Risks   Delays in projects execution or contracts award.  

Source: Kenanga
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