Period    3Q12

Actual vs. Expectations  The 9M12 net profit (NP) of RM4.8m was below our expectations, making up only 53.9% of our full year forecast of RM8.9m. 

Dividends   No dividend was declared for the quarter.

Key Results Highlights  QoQ, the revenue and NP declined 25.5% and 64.0% respectively. These were due to several significant projects being recognised in 2Q12 after they were delayed in 1Q12. 

 YoY, the 9M12 revenue jumped by 14.7% on the back of higher sales from all the regions (Malaysia, +7.3%, South East Asia, +19.1% and China, +42.9%). However, the 9M12 NP was down by 30.2% due to higher operating expenses arising from capacity expansion with the opening of five regional offices in new markets in the past one year. Besides this, there were also RM3m additional expenses being spent for regional technical investment. Excluding these higher development expenses, we believe that the 9M12 results would have actually been in line with our forecast.   

Outlook   We believe the company will continue to strengthen the contributions from its overseas units. In fact, contributions from overseas improved from 35.7% of the group's revenue in 9M11 to 39.8% in 9M12.

 We are still looking forward to see Cuscapi concluding a project with one of the biggest fastfood restaurant chains in Philippines in the near future, which has been delayed since late last year.

 

Change to Forecasts  Maintaining our earnings estimates of RM8.9m'RM11.4m at this juncture. 

Rating     Maintaining MARKET PERFORM   

We are maintaining our MARKET PERFORM rating on the stock pending further updates from the management on the company's future regional investments as well as the potential expenses to be incurred on such investments. 

Valuation    We are maintaining our TP of RM0.41 for now (based on a PER of 8.7x over its FY13E earnings) but will review it in due course after getting further updates from the management above.

Risks   Delay in its projects implementation. 

Source: Kenanga