Despite 1QFY21 only making up 12%/10% of our/consensus full-year forecast, we deem the results as within expectation bearing in mind that the quarter (Feb – April 2020) absorbed the full brunt of MCO at its peak. We expect the coming quarters to fare better as manufacturing utilization rates and construction activities returns to normalcy. Maintain Underperform with an unchanged TP of RM0.51.

Within expectations. Despite 1QFY21 only making up 12%/10% of our/consensus full-year forecast, we deem the results as within expectation bearing in mind that the quarter (Feb - April 2020) absorbed the full brunt of MCO at its peak – and we expect the coming quarters to gradually perform better. No dividends as expected.

MCO impacted performance. 1QFY21 CNP was down 45% QoQ from lower revenue (-52%) on the back of fixed expenses – leading to weaker pretax margins from both its engineering (-16ppt) and metering (-8ppt) segments given that half the quarter (18th March till April 30th 2020) was pretty much idle due to the MCO. Likewise, CNP declined 72% YoY from the same reasons.

Construction works has re-commenced in June. After getting all its foreign workers on-site tested for Covid-19, the two hospital projects (in Putrajaya and Tanjung Karang) under GKENT have re commenced works on 9th and 11th June, respectively. Meanwhile, its metering division fully re-started its operations on 4th May 2020.

Current construction order-book stood at RM4.6b (95% derived from LRT3 at RM4.35b) providing visibility for the next 4 years. Note that we have factored in zero replenishment for GKENT in FY21-22 as they have yet to secure any new construction projects since Dec 2016.

No change to earnings. Post results, we leave our estimates unchanged.

Maintain UNDERPERFORM on unchanged TP of RM0.51 (based on PBV of 0.55x or -1SD from mean). Our rating is premised on the fact that the group’s revenue and profit have been declining due to its depleting order-book while prospect to replenish construction contracts remains bleak.

Risks for our call are: (i) higher-than-expected margins, and (ii) higher than expected contract replenishments

Source: Kenanga Research - 24 Jun 2020