Period  2Q14/6M14

Actual vs. Expectations BARAKAH reported 2Q14 core net profit of RM10.5m, which brought 1H14 core net profit to RM21.6m. This made up 29.5% and 30.2% of our full-year forecast as well as consensus forecasts (for a 15-months period) of RM73.1m and RM71.5m, respectively.

 We deem the results as within expectations as the 1H of the financial year is typically weaker on seasonal factor due to the monsoon season.

 We have restated BARAKAH’s earnings to include: (i) the one-off gain on disposal of subsidiary Vastalux Energy Bhd, (ii) one-off impairment loss on goodwill, (iii) its IPO listing expenses, and (iv) written-off bad debt.

 Note that BARAKAH has changed its FYE to December from September effective Jan-14. Thus, our FY14 forecast is for a 15-month period from Sep-13 to Dec-14.

Dividends  No dividend was declared as expected.

Key Results Highlights 2Q14 core net profit slid 5.3% QoQ despite revenue rising 2.0% to RM84.4m. The increase in revenue is mainly due to higher turnover generated from pipeline and commissioning services division as a result of: (i) partial completion of a Dewatering project and (ii) the increase in number of pipeline commissioning works. However, the decline in earnings is mainly due to lower barge income. This was reflected in its 2Q14 gross margin, which deteriorated to 33.7% from 37.5%

 YoY, the core net profit grew 16.8% on the back of a 31.0% hike in revenue. This is mainly due to increase in the turnover generated from: (i) the topside major maintenance and hook-up commissioning and (ii) the increase in the number of pipeline commissioning works.

 Despite a 8.5% rise in revenue, the 1H14 core net profit declined by 13.9% YoY to RM21.6m, mainly due to lower barge income and higher administrative costs as the result of company growth.

Outlook  Management guided that 1H14 results could be seasonally lower due to the monsoon factor. However, it will pick up in 2H14 on the back of higher installation and construction activities and execution of the new contract.

 Arab Saudi T&I contract closing date for the re-tender will be in Jun-14, which is in contrast to our earlier expectations that it will be dished out by Feb-14. The award of this contract is likely to be in Sep-14 with project commencement only by 2015.

 Excluding the tender book for the Arab Saudi project, we understand that BARAKAH is actively bidding for c.RM400m-RM600m worth of projects.

 Additional growth for the T&I segment will hinge on BARAKAH’s future asset expansion. We understand that the company may expand its asset base in line with the expansion in contracts awarded.

Change to Forecasts We are maintaining our forecasts numbers as we deem the 1H results to be within expectations.

Rating Maintain MARKET PERFORM

Valuation  Our target price of RM1.74 is based on CY15 target PER of 13x.

 We believe our valuation for BARAKAH is still reasonable as we are valuing it at a 13.3% discount to the 15.0x PER ascribed to industry peers such as ALAM (OP; TP: RM2.10) given its smaller asset base (currently it owns only one pipe-lay support vessel).

Risks to Our Call (i) Delay in the Pan-Malaysia’s T&I project execution, which will reduce the potential earnings being factored in our forecasts.

 (ii) Lower-than-expected margins.

Source: Kenanga