Period   2Q12 / 1H12

The 1H12 core net profit of RM9.5m exceeded expectations slightly, making up 56% of our FY12E  core  earnings  of  RM17.1m  on  the  back  of higher than expected construction contributions. 

Dividends   None as expected. 

YoY, the 1H12 core earnings grew 258% after stripping out 1H11 one-off gains (prepaid land gains on disposal of RM19m). Growth was also driven by 1H12 construction revenue, which rose 52% YoY against a slight margin compression of -0.8ppt in operating margins to 3.8%. The key ongoing contracts are Menara Binjai, Verticas, UniTapah. This helped to mitigate softer 1H12 property development operating profit (-19% YoY)  as  the  group  is  focusing  on  completing  its Alam Idaman project, which is near completion/completed. 

QoQ, a higher finance cost (+13% QoQ) eroded the impact of the revenue increase of 15% to RM155.5m, resulting in 2Q12 net profit sliding by 8% to RM4.6m. 

Outlook  CBH will be looking to roll out its Dang Wangi project  in  2H13.  We  also  expect  CBH  to  firm  its JV project to develop the Lembaga Getah Malaysia (MRB) site (GDV: RM1.33b). Since UniTapah concession earnings will commence in FY14E, we expect the group to work towards ring-fencing the concession to allow for better net gearing levels. Currently, the net gearing has improved to 0.79x from last quarter's 0.84x. 

Change to Forecasts

Maintaining FY12-13E core earnings pending our upcoming company visit. Estimates are based on 1) FY12-13E construction orderbook replenishment of RM250m-RM350m, 2) targeted FY12-13E property sales of RM105m-RM271m. 

Rating  Maintain OUTPERFORM

CBH is at its inflection point for a re-rating as it moves from its traditional construction business into the property development scene while riding on the ETP play with Dang Wangi and MRB.

Valuation   Maintaining TP of RM1.49 based on a 10% 'holding company' discount to our FD SoP of RM1.67, inclusive of a 55% discount on property.

Risks  Capital management risks as well as property and construction sector risks, including negative policies and slow contract awards.

Source: Kenanga