Period  3Q13/9M13

Actual vs. Expectations CENSOF’s 9M13 net profit of RM3.8m was way below expectations and accounted for only 29.9% and 29.6% of our and the street’s full year estimates of RM12.8m and RM12.9m, respectively. The major culprit was mainly due to (i) the lower actual billing milestones for its PERKESO projects in the FMSS segment as a result of timing mismatch; and (ii) a higher administration expenses and financing cost owing to recent corporate exercises.

 Based on its historical financial track records, Censof’s 4Q results is typically strong and accounts for about 31%-79% of the full year net profit since listed in Jan-11 due mainly to seasonality.

 Meanwhile, following the 9M13 financial results release, the group has changed its financial year end to Mar-2014 (from Dec-2013 previously), which results in an additional quarter to the Mar-14 financial year end.

Dividends  No dividend was announced during the quarter as expected.

Key Result Highlights   YoY, the 9M13 revenue rose to RM33.1m (+22.1%) on higher revenue contribution from its new Training Solutions segment (which contributed 10.8% of the 9M13 total revenue) coupled with higher recurring maintenance revenue. Nevertheless, despite the rising top line, the group’s net profit declined to RM3.8m (-19.9%) due mainly to the 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 group’s PBT margin was pulled down to 13.5% (vs. 17.1% previously).

 QoQ, 3Q13 revenue was slashed by 46.1% to merely RM7.6m from 14.2m in 2Q13 mainly attributed to the (i) lower actual billing milestones for its PERKESO projects (worth RM33.5m) in the FMSS segment as a result of timing mismatch, (ii) lower revenue contribution of RM0.97m (vs. RM1.6m previously) from the Training Solutions segment. However, this was partially offset by higher maintenance revenue, which usually garners a higher PBT margin of c.50% as opposed to standard FMSS project’s PBT margin of c.20%. As a result, the group’s net profit grew more than double to RM1.1m (2Q13: RM0.5m) with a taller PBT margin of 17.6% (2Q13: 5.4%).

Outlook  Despite the group recorded an uninspiring set of results, our optimistic view on CENSOF’s long-term prospect remains unchanged underpinned by: (i) the potential influx of GST-compliance accounting system upgrade and training services demand from its existing 80 plus government agencies before the official implementation of GST in Apr-CY15, (ii) continued projects/contracts flow from various government agencies for its FMSS project, and (iii) potential massive synergistic benefits that could be created for CENSOF and Time Engineering Bhd (TEB) post acquisition.

Forecasts  Post results, we have slashed our CY13 earnings forecast by 34% to RM8.5m from RM12.8m previously after factoring in (i) a lower than the expected order book of merely RM3.87m as opposed to our earlier estimate of RM24.0m (including potential GST contracts) in 3QCY13; and (ii) lower billing milestone for some of the projects in the FMSS segment in 3Q13 due to timing mismatch. Nonetheless, we are keeping our CY14 earnings forecast of RM15.7m.

Rating  Maintain OUTPERFORM

Valuation  Despite an uninspiring set of 9M13 results, we are keeping CENSOF’s TP at RM0.61 based on unchanged targeted CY14 PER of 15.5x.

Risks  Failure to secure more projects.

 Delay in project revenue recognition.

Source: Kenanga