1Q19 CNP of RM4.7m came below our/consensus estimates (at 8%/7%), due to slower-than-expected billings progress from the Middle East, and unexpected losses from its oil and gas division. No dividends declared as expected. Ceasing coverage due to rationalisation of our research coverage. Previous recommendation as follows: UNDERPERFORM; Target Price: RM0.490.

Below expectations. 1Q19 CNP of RM4.7m came below our/consensus estimates (at 8%/7%), due to slower-than-expected billings progress from the Middle East, and unexpected losses from its oil and gas division. No dividends declared as expected. We derive our CNP after stripping out: (i) unrealized forex gains of RM2.7m, and (ii) reversal of losses of RM3.1m.

Results highlight. 1Q19 CNP came down by 69%, YoY, mainly due to margin compression, as its operating margin declined to 5.3% (-1.7ppt) dragged down by its oil and gas division which registered losses of RM7.6m vis-à-vis profit of RM1.1m in 1Q18. QoQ, 1Q19 CNP came off by 70% mainly due to lower revenue (-19%) coupled with compression in operating margin. The decline in revenue was due to slower billings from all of its divisions, while the compression in operating margin was also due to similar reasons.

Cease Coverage. We are ceasing coverage on the stock due to rationalisation of our coverage universe. Our last recommendation for SENDAI was UNDERPERFORM with a Target Price of RM0.490 based on 7x FY20E PER.

Source: Kenanga Research - 30 May 2019