Period  4Q13/CY13

Actual vs. Expectations FY13 net profit of RM0.4m was way below our expectations and only accounted merely of 4.8% of our full year estimates of RM8.5m as a result of the RM5.31m one-off acquisition cost of acquiring 45.03% of

Time Engineering (TEB) stakes. Stripping off the EI item, the group’s 12-month core net profit would have been RM7.04m, and accounted for c.83% of our FY13 estimate. Note that, the group has announced a change its financial year-end to March from December previously.

Dividends  No dividend was announced during the quarter.

Key Result Highlights YoY, CY13 revenue improved by 13.6% to RM50.8m due to higher revenue contribution from FMSS segment (which contributed 81.1% of the total revenue). Nevertheless, despite the higher top line, its reported net profit plunged to RM0.4m (CY12: RM9.4m) as a result of the higher administration expenses and financing cost, mainly due to the RM5.3m acquisition cost and lower projects margins.

 QoQ, 4Q13 revenue surged to RM17.7m (3Q13:RM7.6m), thanks to the higher revenue from the FMSS segment at RM14.8m (vs. RM6.2m previously). The segment was mainly boosted by higher revenue recognition from the Perkeso project. Despite higher revenue, the group recorded a RM3.0m net loss during the quarter, no thanks to: (i) lower gross profit margin (37.6% vs 59.7%), (ii) RM5.31m one-off acquisition cost, and (iii) higher financing costs.

Outlook  The uninspiring set of results over the past two quarters has caused us to turn cautious. Although the group’s long-term prospects appear interesting due to: (i) the potential influx of GST-compliance accounting system upgrade and (ii) potential massive synergistic benefits that could be created for CENSOF and Time Engineering Bhd (TEB) post acquisition, there is still no solid progress on the GST roadmap at this juncture. Companies are still taking a ‘wait and see’ attitude given that the authority has yet to unveil the details of the GST structure.

Change to Forecasts Post result, we have slashed our FY14 (15-month) core net profit to RM8.2m (-28.9%) after factoring in (i) the lower project margin and (ii) higher finance cost. Meanwhile, we also introduce our FY15 number, where we expect a group’s net profit of RM15.3m after factoring in TEB’s earnings contribution.

Rating Downgrade to MARKET PERFORM

Valuation  We have moved our valuation base year to FY15. Correspondingly, our target price is lowered to RM0.53 (from RM0.61 previously), based on unchanged targeted PER of 15.5x.

Risks to our Call

 Securing more projects.

 Faster synergies with TEB

 Faster GST pick-up from industry

Source: Kenanga