Period

1Q15 Actual vs. Expectation s

BARAKAH’s core net profit of RM18.9m came within expectations, at 23.3% and 22.5% of our and consensus full-year forecasts. Our core net profit excludes RM3.8m one-off share-based expenses.

Dividends

No dividend was declared as expected. Key

Results

Highlights

1Q15 core net profit soared by 79.7% YoY in tandem with a 126.2% leap in its top line primarily driven by: (i) higher work billings from Pan Malaysia Transportation & Installation (T & I) project, Pengerang Pipeline project and pre-commissioning works for North Malay Basin project. However, PBT margin was lower at 9.8% in 1Q15 compared to 1Q14 as a higher proportion of lower margin T&I jobs were done in the quarter. In addition, interest expenses have declined 14.0% YoY due to refinancing of loans for its Pipe-laying barge, KL101 at lower cost.

Core net profit weakened 27.7% to RM18.9m in 1Q15 QoQ, predominantly due to lesser T & I and EPCC works carried out in the quarter compared to the immediate preceding quarter, mainly due to lower work orders carried out in light of the uncertain oil market. On top of that, we believe the monsoon season in 1Q15 had also played a part in the lower work done for T&I contracts. Refinancing of loans led to a 31.2% QoQ decline in interest cost of the group.

Outlook

Timing difference for revenue recognition for Offshore Pan Malaysia T&I works is expected to spill over up to 2Q15. However, whilst BARAKAH could still show a strong 1H15, subsequent quarters could be impacted by lower work orders received for their existing contracts as oil companies turned more cautious in their spending amid uncertain market condition.

As of 31st March 2015, group’s unbilled orderbook stood at RM1.8b, providing earnings visibility for the company for the next 2-3 years.

For the Pengerang Pipeline project, pipes have been delivered in early Nov-14, hence c.40-50% earnings recognition in FY15 is expected. We believe its pipeline services business will remain resilient under current market conditions given it is more inclined to maintenance services, which are less sensitive to oil market cycles.

Excluding the tender book for the Arab Saudi project, we understand that BARAKAH is actively bidding for c.RM400m-RM600m worth of projects. Meanwhile, we expect c.RM150m-RM200m new wins per annum.

Change to Forecasts

We have maintained our forecast for now.

Rating

Maintain MARKET PERFORM

Valuation

TP is revised downwards to RM0.94 from RM1.04 previously as we reduce our targeted CY16PER to 9.0x from 10.0x as before as we foresee weaker prospect for the overall O&G industry in the near term. Timing of earnings recognition remains a major risk for the company.

Risks to Our Call

Upside risks are: (i) Faster-than-expected Pan-Malaysia’s T&I project execution, which will increase the potential earnings being factored in our forecasts.

(ii) Higher-than-expected margins.

Source: Kenanga Research - 27 May 2015