Period    2Q12/1H12

 The 1H12 net profit of RM3.0m was below expectations even after taking seasonal factor into consideration.

 Based on its historical financial track records, Censof's 1H result is typically weaker and accounts for about 30%-35% of the full year net profit due mainly to seasonality factor.

 However, the 1H12 net profit merely accounted for 17% and 15% of ours and the street's full year estimates of RM17.4m and RM20.3m respectively.

Dividends   No dividend was announced during the quarter.

 YoY, the 1H12 revenue rose by 67% to RM21.8m, driven by higher contribution from the FMSS segment (+71%) and on-going SAGA projects such as Outcome Bases Budgeting (OBB) and ICMS, which had started since 2H11. However, despite strong growth at the top line, net profit was flat at RM3.0m (+3%) due mainly to 1) higher operating cost in the FMSS division, which eroded EBIT margin by half to 14% in 1H12 and 2) the quarter was predominantly focusing on more fasttracking projects, which generally garner lower GP margins. 

 QoQ, despite the revenue improving by 56% to RM13.3m from more fast-tracking projects, which are those projects with tight deadlines, one-off and low GP margin projects for the FMSS division, the net profit was lower at RM1.1m (-46%) as a result of higher operating cost incurred during the quarter. Hence,  the net profit margin was down to 8.2% (vs. 23.5% previously).

Outlook   Remains bright in the long-run underpinned by i) active tendering of contracts for both the Indonesian and M'sian markets ii) continued projects/contracts flow from the various government agencies e.g. PERKESO.

 However, it underperformance of results could probably imply delays in revenue recognition and margin erosion.

Forecasts   We have lowered our FY12-FY13 revenue forecasts by 5% and 2% to RM53.8m and RM72.5m respectively to realign the projects timeframe. We have also slashed our FY12-FY13 NP forecast by 45% and 22% to RM9.5m and RM17.1m respectively after imputing in the weaker 2Q12 result and the lowering of our profit margin assumptions. 

Rating  MAINTAIN OUTPERFORM

Valuation    We have reduced our TP to RM0.61 (vs. RM0.74 previously) based on a targeted FY13 PER of 11.5x 

Risks   Failure to secure more projects

 Reduced government spending on ICT

Source: Kenanga