Period 1Q12
Actual vs. Expectations
The 1Q12 net profit (NP) of RM17.8m was below expectations, making up only 15% of our full year estimate (RM115.7m) and 14% of the consensus' full year estimate (RM129.0m).
The variance to our net profit estimate was mainly due to the delay in the recognition of the Gorgon project in the current quarter, which led to overall lower bottom line earnings for the company.
Dividends No dividend was declared in the quarter.
Key Results Highlights
YoY, the 1Q12 NP decreased by 59% due mainly to a high base effect from the earnings earned in 1Q11, which saw two quarters contribution of the Gorgon project then after it was delayed in 2010.
QoQ, the group's NP was down by 9% mainly due to lower margins from the oil and gas division which were hit by 1) less than optimal project mix given that Gorgon did not come in for the quarter and 2) continual losses from the Engineering division due to a project which had continued to see cost overruns.
Outlook Short-term project replenishment will be fuelled by domestic projects like the North Malay Basin and pipeline replacement due to Petronas' asset rejuvenation plans.
Longer term, its pipe-coating plant with Louisiana (JV with Insituform) will enhance its reach in the Gulf of Mexico.
The order book currently stands at RM1.2b (63% oil and gas/ 21% renewable energy/ 16% industrial and trading).
Change to Forecasts
We are maintaining our FY12E NP assumptions given that the Gorgon project will kick in likely in 2Q12E.
However, we are trimming our FY13-14E NP marginally by 5% p.a. to RM120.8m and RM125.7m respectively as up to now, the company has been unable to win major international pipe-coating projects, which typically carry higher margins. As such, we have reduced our GP margin assumption to 28% (from 29%).
Rating MAINTAIN OUTPERFORM
Valuation We have rolled forward our valuation basis to FY13.
Given that earnings visibility looks uncertain and volatile in the near-term, we have downgraded our target PER to 14x (from 15x). With that our target price is downgraded to RM2.23/share (RM2.30 previously).
Given the 20% upside, we are maintaining our call.
Risks Inability to secure more contracts going ahead.
Lower-than-expected margins.