1HFY20 CNL of RM4.9m is below our previous estimate of a CNP of RM0.3m mainly due to lower-than-expected revenue and margins achieved. No dividend was declared as expected. Post results, we now forecast CNL of RM6.7m/RM1.5m for FY20E/FY21E. Maintain UNDERPERFORM call and lower Target Price to RM0.160 based on 0.12x FY21E BV/share.

Below expectations. 1HFY20 recorded CNL of RM4.9m which is below our estimate of a RM0.3m profit, mainly due to lower-than-expected revenue and margin achieved by the company. No dividend was declared, as expected.

Results’ review. YoY, 1HFY20 registered higher CNL of RM4.9m compared to RM1.3m in 1HFY19, mainly due to significant drop in revenue from both Cable Support (-35%) and Electrical Lighting (-41%) divisions caused by mandatory business closure in compliance with the MCO imposed by the government. QoQ, 2QFY20 recorded higher losses of RM4.4m compared to RM0.6m in the preceding quarter, largely due to the same reasons mentioned above.

Outlook. The outlook for the sector remains challenging, underpinned by weak prospects in the construction industry and stiff competition from other new players. However, we believe the revival of mega infrastructure projects could be a positive catalyst for the industry. Besides, ULICORP's prospects also depends on their ability to fend off the competition in this weak market environment given that they currently command a market share of c.40%.

Earnings review. Post results, we now forecast CNL of RM6.7m/RM1.5m for FY20E/FY21E as compared to CNP of RM0.3m/RM0.5m previously. The revisions are in view of softer demand and lower margins due to weak market prospect and lingering pandemic.

Maintain UNDERPERFORM on ULICORP with lower TP of RM0.160

based on Fwd. P/BV of 0.12x applied to FY21E BV/share of RM1.30, which is at 1SD below mean due to the lacklustre sentiment on the sector and challenging operating environment.

Risks to our call include: (i) higher-than-expected sales of CSS products, and (ii) lower-than-expected steel prices and overhead costs.

Source: Kenanga Research - 28 Aug 2020