FY19 CNP of RM78.3m came in within expectations making up 105%/96% of our/consensus full-year estimates. A third interim dividend of 3.5 sen was declared, bringing full-year dividend declared to 7.0 sen which is above our expectation of 5.0 sen. No changes to FY20E earnings, introduces FY21E CNP of RM109.3m. Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.15.

Results in line. FY19 CNP of RM78.3m came in within expectations making up 105%/96% of our/consensus full-year estimates. A third interim dividend of 3.5 sen was declared, bringing full-year dividend declared to 7.0 sen which is above our expectations of 5.0 sen.

Results highlight. FY19 CNP fell 43%, YoY attributable to: (i) sharp decrease in revenue (-30%), (ii) decline in associate and joint venture contribution (-27%), and (iii) higher effective tax rate of 33% (+11ppt). The decline in revenue is due to the decline in billings for its construction division coupled with slower sales in its metering division. The decline in associate contribution is due to the project cost review on LRT3, which resulted in a temporary halt in work progress for that project. QoQ, its 4Q19 CNP improved by 7% backed by revenue growth of 11% thanks to its construction division’s revenue growth of 22% which we believe could be due to the handover of LRT2 project.

Outlook. For LRT3, the current progress is still at c.10%, but management remains optimistic in meeting the construction timeline as it has been rescheduled to 2024. Currently, management is expecting the redesign of the project to be completed by 2HCY19 and is hopeful that work will progress to full swing once its sub-contractor receives the final designs’ approval and proceeds with works on the stations. As for its metering division, management is excited as they are doubling their effort in promoting their smart metering solutions to various state governments and countries within the South-East Asia region. Its smart meters are an add-on to existing meters that offers fixed network reading or mobile network reading allowing water players to bill customers effortlessly and we have built the potential into our estimates. However, impact will not be significant in the near term.

Earnings estimates unchanged. Post results, we made no changes to our FY20E CNP, while introducing our FY21E CNP of RM109.3m.

Maintain MARKET PERFORM. We maintain our MARKET PERFORM call with an unchanged Target Price of RM1.15. We believe that its outlook is improving but still highly dependent on the execution of LRT3. Our TP implies FY20E PER of 7.8x which is in-line with our ascribed multiple of 6.0-11.0x within the construction space.

Risks for our call are: (i) higher/lower-than-expected margins, and (ii) ahead of schedule/delay in construction works.

Source: Kenanga Research - 26 Mar 2019