Period  4Q14/ FY14

Actual vs. Expectations  FY14 core net profit (CNP) of RM322.4m came in above expectations, making up 150% and 110% of our and market estimates, respectively. (Refer overleaf)

 The positive variance was due to: (i) higher-thanexpected construction profit driven by the EDT Double Track’s full completion, and (ii) higher-than-expected Malakoff contribution boosted by reimbursement from TNB for Malakoff’s unutilized scheduled outage hour.

Dividends  None as expected.

Key Results Highlights  QoQ, 4Q14 core net profit jumped by 148% driven by construction and E&U divisions. As for construction, the segment’s PBT grew strongly by 92.2% boosted by MRT1 progress and EDT Double Track project’s full completion. As for E&U, the segment’s PBT rose 14.0% driven by full recovery of Tg Bin and reimbursements from TNB.

 Overall, 4Q14 core net profit jumped by 323%YoY and 41% YTD due to low base effect. To recap Malakoff’s Tg Bin plant was under major maintenance in FY13. Furthermore MRT1 construction was still at infant stage in FY13, hence lower profits. Also, the strong construction and Malakoff contributions outshined the recent weaker-than-expected FY14 GASMSIA (UP; TP: RM2.22) earnings. (Refer our GASMSIA’s 4Q14 Results Note on 13th February 2015).

Outlook  Remain bright in the near-medium term driven by: (i) relisting of Malakoff in 2Q15 (SC has already approved the listing application) which will clean up the group’s balance sheet, (ii) growing port divisions’ earnings, (iii) recovery of core earnings in Malakoff, and (iv) direct beneficiary of multi-billion dollar MRT projects.

Change to Forecasts  Despite the better-than-expected results, moving forward, in FY15, we opt to be conservative by revising lower our CNP forecasts by 7.2% as: (i) we expect MRT1 contribution to be lower than that of FY14 as the group’s tunnelling portion is entering the tail-end of the completion stage (70%), hence lower margins, and (ii) lower GASMSIA earnings. Rating Maintain OUTPERFORM

Valuation  MMCCORP is one of our top picks for the sector due to the imminent Malakoff relisting. Post listing of Malakoff, the group’s debt will be reduced substantially which will also result in interest cost savings. Also, there is upside potential from our current SoP valuation should Malakoff is listed at higher valuation. We have only valued Malakoff at RM6.9b, implying PER of 12.3x as compared to TENAGA’s 15.0x.

 Due to recent downgrade in GASMSIA’s valuation (13th February 2015), we tweaked our SoP-based TP to RM3.03 from RM3.21 previously. Our new TP implies FY15 PER of 25.5x, in line with its 5-year average Fwd-PER of about 25.0x.

 It is important to note that despite cutting GASMSIA’s earnings estimate and ascribing conservative valuation on Malakoff in our SoP, the stock still offers 17% upside from current price.

Risks to Our Call  Slower-than-expected construction progress.  

Another delay in Malakoff listing. 

Source: Kenanga