Below expectations. Censof's 1HFY12 earnings were below expectations, representing only 15%-16% of our and consensus full-year estimates. During the quarter, the top-line surged (56% q-o-q, 150% y-o-y) due to the fast tracking of ongoing Standard Accounting System for Government Agencies (SAGA) projects. However, earnings shrank by 45% q-o-q (+21% y-o-y), caused by higher operating costs arising from increased activities. Depreciation and amortisation charges (+4% q-o-q, +67% y-o-y) continued to crimp profit margins, too. In 2HFY12, revenue recognition will likely still be stronger due to seasonality, but should be slightly offset by rising fixed costs.

Another disappointing quarter from PTPT. 60%-owned Indonesia subsidiary PT Praisindo Teknologi (PTPT)'s revenue contribution continued to disappoint for the second consecutive quarter. The Wealth Management Solutions division fell another 17% sequentially after the company saw its top-line drop by 44% q-o-q in 1QFY12. However, PBT returned to the black at RM40k compared to the previous quarter's loss of RM146k. That said, the company's performance was still a long way from its all-time high PBT margin of 72% in 4QFY11. We now reckon PTPT's contribution to the enlarged Censof group will be minimal for the rest of year.

Contracts secured in April to show in 2HFY12. In April, Censof was awarded contracts worth RM33.5m by Pertubuhan Keselamatan Sosial (Perkeso) and RM5.6m by Lembaga Hasil Dalam Negeri (LHDN). Works began in May though more meaningful contribution to revenue should only register in 2HFY12. We think the profitability of both contracts will be weighed down by higher fixed costs as seen in the past two quarters.

Downgrade to SELL, revised FV of RM0.29. We are trimming our FY12/FY13 earnings forecasts by 47%-48% due to the weak set of financial results. Our top-line and margins assumptions have been lowered given: i) the slower-than-expected recognition in revenue, ii) higher depreciation and amortization charges and iii)growing operating costs. We are downgrading the stock to a SELL, with a new FV of RM0.29 based on the unchanged 9x FY13 PE.

Source: OSK