Period     1Q13

Actual vs. Expectations    1Q13 net profit of RM8.8m came in way below expectations, as it accounted for only 2% of ours and consensus estimates, respectively. The negative variance was due to lower-than-expected revenue from energy and utilities division, which was further aggravated by the lower fuel payments due to weaker coal prices, coupled with major maintenance works.

Dividends    There was no dividend declared in 1Q13

Key Results Highlights   QoQ, both revenue and net profit declined by 10% and 89% respectively in 1Q13.  The decline was mainly due to; 1) lower revenue from the energy and utilities division (-15%) and; 2) provision of RM46m in relation to the award for the arbitration proceedings between Wayss & Freytag (Malaysia) Sdn Bhd and the MMC –Gamuda JV. However, the provision of RM46m arising from the arbitration award may be written-back as MMC-Gamuda had jointly filed an application to KL High Court to contest the arbitral award. 

YoY,  1Q13 net profit also plunged by 70%, mainly attributed by; 1) the deconsolidation of Gas Malaysia Bhd (June 2012); 2) lower fuel payments due to weaker coal prices which affect revenue given the “fuel-cost-pass-through” formula, and; 3) lower revenue from Malakoff Corp following the major maintenance works at the Tanjung Bin power plant.

Outlook    Going forward, post-listing of MMC’s bread and butter Malakoff Corp in 1H2014, MMC will focus more on engineering & construction. In fact, the management is looking for RM1.0b new orderbook every year on top of its current outstanding orderbook of RM5.0b that will last until 2017/18.

Change to Forecasts     Factoring in the lower-than-expected energy & utilities division revenue, we cut our net profit forecasts by 16%-4% in FY13-FY14. Note that these are tentative forecasts as we will be meeting management next week seeking for more clarification from the management.

Rating  Maintain MARKET PERFORM

We are keeping our MARKET PERFORM rating on MMC as the share price is already fully valued. Re-rating is possible if there are fresh catalysts.

Valuation     Post the earnings revision, our Target Price tweaked to RM2.67 (from RM2.80) based on SoP-based valuation.

Risks    Delays in MRT works 

Late deliveries of Tunnel Boring Machine (TBM)

Source: Kenanga