Period  3Q14/9M14

Actual vs. Expectations BARAKAH reported 3Q14 core net profit of RM12.3m which brought 9M14 core net profit to RM34.0m. This made up 46.5% and 44.7% of our full-year forecast as well as consensus forecasts (for a 15-months period) of RM73.1m and RM76.0m, respectively.

 We deem the results as within expectations as profit recognition from large projects-in-hand such as Pan Malaysia T&I jobs is expected to pick up in 2HCY14.

 We have restated BARAKAH’s 9M14 core net profits to include: (i) the oneoff gain on disposal of subsidiary Vastalux Energy Bhd, (ii) one-off impairment loss on goodwill, (iii) its IPO listing expenses, and (iv) bad debts written-off.

 We highlight 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 3Q14 core net profit increased by 17.3% QoQ on the back of 89.2% surge in revenue. The increase in revenue is mainly due to: (i) completion of KPOC topside installation work in June, and (ii) commencement of new Pan Malaysia T&I projects.

 The core net profit grew >100.0% YoY to RM12.3, while revenue leaped by 57.7%. This is mainly due to an increase in the turnover generated from: (i) KPOC topside installation work, (ii) commencement of new Pan Malaysia T&I projects as mentioned above, and (iii) other on-going Onshore Engineering, Procurement, Construction and Commissioning projects.

 The 9M14 core net profit is up by 11.6% to RM34.0m YTD backed by a 54.4% hike in revenue, mainly due to better performance from the installation and construction services segment as mentioned above.

Outlook  Profit recognition is expected to pick up in 2H14 on the back of higher installation and construction activities and execution of the Pan Malaysia new contract from Jun-14.

 The Pengerang Pipeline project contract value has been revised to RM260.0m (versus RM130.0m previously) as BARAKAH has now become the main contractor (versus a subcontractor previously). Management expects the job to start as soon as Sep-14, with earnings recognition from Oct-14 onwards.

 Arab Saudi T&I tender is still on track for awards by 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 and geographical expansion. From a geographical standpoint, it mentioned Vietnam and Brunei as potential regional bases for expansion.

 Interestingly management also hinted they are open to moving to the E&P space.

Change to Forecasts We are maintaining our FY14-15 forecasts as we deem the 9M results to be within expectations.

Rating Upgrade to OUTPERFORM from MARKET PERFORM

 Share price has corrected 26% from its peak of RM1.87 in Feb-14; as such, there is plenty of upside. We are also more confident on BARAKAH’s outlook as the Pan Malaysia T&I projects has finally kick-started.

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