Period     2Q13/1H13

Actual vs.  Expectations    Censof Holdings (“CENSOF”) 1H13 net profit of RM2.7m was below expectations and accounting for only 16.4% and 18.3% of our and the street’s full-year estimates of RM16.4m and RM14.7m, respectively. Note that, the group’s 1H results were generally accounted for c.30% of its full-year estimate based on its historical financial performance. Higher administration and finance costs were the key factors for its weak 1HFY13 result. 

Dividends    No dividend was announced during the quarter as expected. 

Key Result Highlights YoY, the 1H13 revenue rose to RM25.5m (+16.9%) on higher revenue contribution from its new Training Solutions segment coupled with higher recognition of maintenance revenue. Nonetheless, despite the rising top line, the net profit dropped to RM2.69m (-9.7%) due to higher administration expenses and financing cost as a result of recent corporate exercises for issuance of Redeemable Convertible Notes (“RCN”) and private placement. Hence, the PBT margin was pulled down to 12.3% (vs. 13.5% previously). 

QoQ, 2Q13 revenue was improved by 25.9% to RM14.2m from 11.3m in 1Q13 mainly attributed to the partial billing for the Perkeso project and higher revenue contribution of RM1.6m (vs. RM1.0 previously) from training solutions segment. However, the higher cost of sales of RM9.7m (+74%) and administration costs of RM3.2m (vs. RM2.6m previously) lowered the group’s PBT margin substantially to 5.4% as compared to 20.9% in 1Q13.

Outlook    We believe CENSOF’s long-term outlook remains encouraging, underpinned by: (i) potential catalyst from GST development in the upcoming 2014 Budget, (ii) potential growth prospect from positive M&A synergy; and (iii) continued projects/contracts flow from various government agencies.

Forecasts    Our latest meeting with Censof’s management indicated that there could be a 1-2 quarters delay in completing PERKESO projects (worth RM33.5m), targeted to be completed by August 2013, due mainly to timing mismatch. The delay may potentially cause higher operating costs in both labor and administration expenses compelling us to lower our FY13E-FY14E net profit by 22.0%-14.9% to RM12.8m and RM15.4m, respectively. 

Rating    Maintain MARKET PERFORM

Valuation     Despite an uninspiring set of 1H13 results, our CENSOF’s TP is only trimmed marginally by 1.0 sen to RM0.61 (vs. RM0.62 previously) as we have raised our targeted FY14 PER to 15.5x (+1SD) from average 12.2x previously propelled by exciting prospects from potential GST development in the upcoming 2014 Budget, which may serve as an earnings growth catalyst. 

Risks    Failure to secure more projects.

Delay in projects revenue recognition.

Source: Kenanga