1H19 CNP of RM30.5m which came in at 43%/47% of our/consensus full-year estimates, is below our expectation but within consensus. 1.0 sen dividend declared, as expected. Maintain MARKET PERFORM with unchanged Target Price of RM1.40 based on FY20E PER of 10.0x.

Below our, within consensus. 1H19 CNP of RM30.5m which came in at 43%/47% of our/consensus full-year estimates, is below our expectation but within consensus. We believe the deviation is due to our slightly optimistic assumptions for its construction margins, as we had anticipated for it to be improving as billings pick up pace. A 1.0 sen dividend was declared, as expected.

Results highlight. 1H19 CNP grew 9%, YoY driven by decent revenue growth of 13%. The growth in revenue was driven by both its construction and property divisions, which grew by 10% and 37%, respectively. Its property division decent revenue growth was driven by higher progressive billings and sales achieved for its on-going development projects, i.e. Vista Industrial Park and La Promenade. QoQ, 2Q19 CNP grew by 17% due to similar reasons above.

Outlook. We believe that the overall construction works for its existing projects like Pan Borneo (c.50%), Miri (c.60%) and Kuching Waste Water (c.20%) are progressing smoothly. As such, we anticipate higher construction billings in 2H19 as its major on-going projects move into more mature stages. Its current outstanding order-book stands at c.RM2.5b providing 3-year visibility.

Earnings review. Post results, we adjusted our FY19E earnings lower by 7% as we fine-tuned our margin assumptions for its construction jobs, but make no changes to our FY20E earnings.

Maintain MARKET PERFORM with an unchanged Target Price of RM1.40 based on FY20E PER of 10x. We base our TP on FY20E PER of 10.0x which is close to its 5-year -1.5SD level, at the higher end of the ascribed 6-11x PER valuation range of small-mid cap contractors.

Risks to our call include higher/lower-than-expected job wins, accelerated/delayed construction billings progress and higher/lower than-expected construction margins.

Source: Kenanga Research - 23 Aug 2019