Period  4Q13/FY13

Actual vs. Expectations 4Q13 results came in within both our and consensus expectations. The FY13 net profit of RM20.2m hit 98.0% of our estimates and 99.6% of market consensus.

Dividends  No dividend was declared for the quarter. Total NDPS in FY13 is 7.0 sen which is lower than our assumption of 8.7 sen.

Key highlights  Despite revenue growing 16%, 4Q13 net income only rose by 6% QoQ to RM6.6m from RM6.2m in 3Q13. This was mainly due to higher taxation charges (effective tax rate of 34% vs. 27%) and interest expense (+RM0.5m or +51%).

 On a YoY comparison, the 4Q13 net earnings contracted 28% from RM9.2m although revenue leapt 20%. Apart from higher taxation, rising raw material costs partly contributed to the earnings decline. This was reflected in its Project Segment’s operating margin, which dropped to 21% from 24%.

 YTD, FY13 net profit jumped 22% to RM20.2m from RM16.5m while revenue surged 34% over the year. The increase in topline was mainly due to higher billings for local utilities and industrial customers in SCORE. Again, the decline in profit margin was partly attributable to rising raw material environment.

Outlook  The RM424m orderbook (as at Jan-14) should provide at least 1.5 years of firm earnings visibility. With its current tenderbook of RM1.61b, we believe our new order assumption of RM350m-RM400m in FY14-FY15 is not overly optimistic.

Change to Forecasts We have revised our FY14E and FY15E net profit estimates slightly lower by 2.8 and 1.7%, respectively, to account for higher interest expense based on its 4Q13 trend.

Rating Maintain OUTPERFORM

Valuation  Our revised price target is now RM4.10 from RM4.25, based on lower EPS estimate due to: (i) earnings downgrade and (ii) larger share base of 98.0m shares from 96.4m shares following the recent DRP (dividend reinvestment plan) exercise. The price target is based on CY15 10x PER.

Risks to Our Call Failure to replenish orderbook.

Source: Kenanga