Period     1QFY13

Actual vs.  Expectations    1Q13 net profit of RM2.2m was below expectations and only accounted for 13.1% and 14.6% of ours and the street’s full year estimates of RM16.4m and RM14.7m respectively. The less exciting results were due mainly to higher staff training cost to cater for the OBB project and dwindling profit margin. 

However, we notice that CENSOF’s 1Q usually accounted for about 22% of the full year earnings based on the last two financial years. The group strongest quarter usually fall into 4Q in view of the fact that most government agencies wait for their respective budget allocations and disbursements during the final quarter of the year. Besides, the 4Q normally commands the strongest profit margins.

Dividends    No dividend was announced during the quarter as expected. 

Key Result Highlights   YoY, 1Q13 revenue rose to RM11.3m (+32.3%) due to higher revenue contribution from its recent acquired company – knowledgeCom and higher recurring income maintenance services from its ongoing projects. However, despite the net profit rising to 12.6% to RM2.3m, the net profit margin was pulled down to 20.1% (vs. 23.6% previously) as a result of 1) higher administration expenses (+25% to RM2.9m) due to additional staff training cost incurred during the quarter particularly cater for the OBB project; and 2) a higher effective tax rate of 3.9% against 0.4% previously. 

QoQ, revenue was declined by 36.9% to RM11.3m (4Q12:17.9m) due mainly to 1) lower revenue contribution from FMSS segment at RM8.9m (vs. RM14.5m previously) as a result of lower revenue recognition from its higher margin OBB project and ongoing SAGA enhancement project; and 2) the seasonal factor. Thus, the group’s net profit margin fell to 20.1% (vs. 25.8% previously).  

Outlook    We believe CENSOF’s long-term outlook remains encouraging, underpinned by 1) its strong order book of RM42.86m; 2) its active tendering of contracts for both the Indonesian and Malaysian markets for its FMSS segment; 3) continued projects/contracts flow from the various government agencies; and 4) the upcoming Good & Services Tax (GST) implementation.

Forecasts    FY13E-FY14E earnings remain unchanged. As we highlighted earlier, 1Q is normally the weakest. Besides, we should see improvement in government agencies’ projects/contracts flow post GE.  

Rating    Downgrade to MARKET PERFORM  in view of the limited capital upside.

Valuation     Raised TP to RM0.62 (from RM0.56 previously) after rolling over our valuation base year to FY14 with an unchanged targeted PER of 12.2x. 

Risks    Failure to secure more projects.

Delay in projects revenue recognition.

Source: Kenanga