Period  2Q13/1H13

Actual vs. Expectations  Seremban Engineering’s (“SEB”) 2Q13 net profit of RM2.2m brought the 1H13 net profits to RM3.8m.

 The 1H13 net profit came in within our expectation, accounting for 48.0% of our full-year estimate of RM7.9m.

Dividends  No dividend was announced.

Key Results Highlights  QoQ, the 2Q13 revenue grew by 40.1% to RM28.8m compared to RM20.5m in 1Q13 due to higher sales recorded during the quarter as the international sales were higher by 67.0%. This was attributable to higher overseas fabrication jobs demand, particularly for palm oil refineries in Indonesia. To recap, 1Q13 was a also shorter working period on the back of the Chinese New Year holiday which affected the percentage of completion recognition for its projects and sales.

 YoY, the revenue and net profit rose by 7.1% and 49.3% to RM28.8m and RM2.2m respectively mainly due to: (i) higher sales recorded; and (ii) cost savings resulting from effective project management.

 The 1H13 net profit of RM3.8m was up by 6.7% compared to 1H12 also mainly due to higher sales recorded as mentioned above.

 Despite the higher effective tax rate of 24.3% in 2H13 as compared to 22.7% in 2H12, the YoY net margin increased to 7.6% (7.3% in 2H12) as the result of lower cost of sales.

Outlook  According to Oil World data, palm oil production in Indonesia is estimated to enjoy an annual growth of 5.8% in 2013, which will be a booster to SEB’s FY13E revenue and earnings.

 SEB targets the commencement of its new fabrication operation facility in Lumut by early-14, which could be a further catalyst to FY14 earnings while raising its exposure to the oil and gas sector.

 We continue to like SEB as its prospects remain positive on the back of increasing activities for its process equipment business and its diversification plan into the oil and gas sector.

Change to Forecasts  No change to our FY13-FY14 estimates given that the earnings were within expectations.

Rating Maintain OUTPERFORM

Valuation  Maintaining our target price of RM0.78 based on an unchanged 6.5x FY14 PER.

Risks  Delays in projects execution or contracts award.

Source: Kenanga