3QFY21 CNP of RM10.6m lifted 9MFY21 CNP to RM23.1m, in line with our/consensus expectation at 66%/71%. A depleting construction order-book coupled with the potential termination from LRT3 turnkey role weighs heavily on the group. With unchanged estimates, we maintain our UNDERPERFORM rating but with a higher TP of RM0.56 after rolling valuation base year to FY22.

Within expectations. 3QFY21 (Aug – Oct 20) CNP of RM10.6m lifted 9MFY21 CNP to RM23.1m, in line with our/consensus expectation at 66%/71% of forecast, respectively. No dividends declared as expected.

Highlights. 3QFY21 CNP of RM10.6m was up 22% QoQ on the back of 12% growth in revenue as water metering orders picked up significantly along with the gradual recovery of the economy. Dissecting segmentally, its water metering business saw revenue surging 55% QoQ which lifted PBT by a whopping 93%. That said, its engineering segment’s revenue contribution was down 23% possibly due to lockdown compliance. Meanwhile, 9MFY21 CNP of RM23.1m was down 34% YoY, no thanks to the Covid-19 pandemic.

Current construction order-book stands at RM3.6b, of which the bulk (of >95%) is actually derived from LRT3 at RM3.5b providing visibility for the next four years. Note that we have factored in zero replenishment for 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.

Potentially out of LRT3. Over the weekend, the Edge reported that GKENT could possibly be terminated and replaced from its current LRT3 turnkey role under the MRCB-GKENT partnership. While these are mere speculations for the time being, we note that our FY22 earnings forecast could see a 37% downside to RM33m from the omission of LRT3 contributions.

Maintain UNDERPERFORM with higher TP of RM0.56 (from RM0.51) after rolling valuation base year to FY22 on unchanged PBV of 0.55x or -1SD below mean. Our rating is premised on its depleting order-book coupled with bleak replenishment prospects.

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

Source: Kenanga Research - 16 Dec 2020