1H19 CNP of RM62.7m makes up 57%/60% of our/consensus full year estimates. However, we deem the performance as within our/consensus expectations as we are expecting subsequent quarters to track its 2Q19 performance. No dividends declared, as expected. No changes to FY19-20E earnings. Maintain UP with an unchanged SoP-driven TP of RM0.815.

Broadly within expectations. 1H19 CNP of RM62.7m makes up 57%/60% of our/consensus full-year estimates. However, we deem the performance as within our/consensus expectations as we are expecting subsequent quarters to track its 2Q19 performance. No dividends declared, as expected.

Results’ highlight. 1H19 CNP fell 22% amid a decline in revenue (- 20%) due to slower billings from both its construction and property development divisions which revenue came down by 22% and 29%, respectively. Positively, its property investment division registered a decent revenue growth of 20% due to the contribution from Paradigm JB coupled with higher rentals from Aeon Bukit Tinggi. QoQ, its 2Q19 CNP fell sharply by 42% due to: i) weaker revenue (-13%), and ii) absence of land sale recognition which took place in 1Q19.

Outlook. In a separate announcement, WCT announced that they have secured a letter of intent for the construction works for another building in Pavilion Damansara Heights (PDH), totalling to RM1.0b which is well within our replenishment assumptions of RM1.5b. To recap, WCT secured their first PDH project last year with a contract value of RM1.7b. We believe that WCT would be able to convert its letter of intent into a project award in the near term, bringing its outstanding order-book to c.RM7.0b with 2.5-3.0year visibility.

Estimates maintained. Post results, there are no changes to our FY19-20E earnings for now.

Maintain UNDERPERFORM with an unchanged SoP-driven Target Price of RM0.815, as we believe potential positives for the stock is already priced in. Our current TP implies FY20E PER of 8.7x, within our ascribed multiple range of 6-11x for contractors. Its implied multiple of 8.0x is at the lower-end of the band, mainly due to our more conservative view on its property division on account of the weak market sentiment.

Risks to our call include: (i) higher-than-expected margins/order-book replenishment, and (ii) higher government spending on infrastructure projects.

Source: Kenanga Research - 28 Aug 2019