Period    3Q12 / 9M12

Actual vs. Expectations   The reported 9M12 net profit of RM83.3m came in slightly below expectations, accounting for 67% and 66% of ours and the street's estimates of RM125.4m and RM127.1m respectively.

Dividends   A dividend of 2 sen was declared as expected.

Key Results Highlights  YoY,  the 9M12 net profit increased marginally by 0.3% from RM83.0m to RM83.3m on the back of lower revenues recognised from the Middle East due to the completion of works in the earlier part of the FY at the Doha International Airport and Doha Convention Centre. However, the revenue recognition in India and Malaysia grew substantially by >100% due to a build-up in order book in these two countries. Some of the notable projects like Tg. Bin power plant, Emco Power Plant and Worley mixed development project were the main contributors to the earnings. 

 QoQ,  the 3Q12 net profit declined by 16% from RM30.5m to RM25.5m due to the completion of contracts in the Middle East and the compressed  gross margin in India's projects from 11% to 7.4%. However, the newly secured projects in Malaysia, i.e. Manjung Power Plant, Tanjung Bin Power Plant and Polycrystalline Silicon Manufacturing Plant have started to contribute positively with superior gross overall margins at 38%. We expect the overall margin to normalise at c. 25% once the construction activities reach their peak. 

Outlook   The current order book stands at RM1.5b, which comprises of structural steel based contracts segment (36%), power plant (36%) and civil construction works (27%). The Middle East remains the largest market, contributing 45.5% to the order book followed by Malaysia (36%) and India (19%). All in, this will provide at least another two years of earnings visibility for the group.  

Change to Forecasts    We have trimmed our FY12-13 earnings estimates by 4.0% and 5.7% to RM120.0m and RM138.6m respectively as we factor in a lower revenue from the Middle East.

Rating  Maintain MARKET PERFORM

 We are maintaining our MARKET PERFORM rating given the lack of fresh leads for new infrastructure projects in the near term.

Valuation    We have revised down our Target Price slightly to RM1.43 from RM1.52 previously based on an unchanged 8.0x PER on our adjusted FY13 EPS. 

Risks   Higher raw material costs and delays in ETP-based project awards.  

Source: Kenanga