4QFY21 CNP of RM14.3m lifted FY21 CNP to RM37.4m, in line with our expectation (at 105%) but slightly above consensus (at 115%). A final 1.5 sen dividend declared brought total dividends to 2.5 sen – above our 1.6 sen estimate. With unchanged earnings estimates, we maintain our UNDERPERFORM rating and TP of RM0.56, given its depleting construction order-book with bleak replenishment prospects.

Within expectations. 4QFY21 (Nov 2020 – Jan 2021) CNP of RM14.3m lifted FY21 CNP to RM37.4m, in line with our expectation at 105%. However, this is slightly above consensus at 115% as street may have underestimated the JV contributions from LRT3. Meanwhile a final 1.5 sen dividend declared brought total FY21 dividends to 2.5 sen – above our 1.6 sen forecast.

LRT3 contribution led the surge. 4QFY21 CNP of RM14.3m was up 34% QoQ mainly attributable to a 43x surge in JV contribution (from LRT3) as earnings picked up on the back of: (i) finalization of renegotiations between MRCB-GKENT (main contractor) and respective subcontractors, and (ii) normalization of progress post lockdowns.

Meanwhile, FY21 CNP of RM37.4m was down 10% YoY, no thanks to the Covid-19 pandemic dragging its engineering division’s revenue and pretax profit down by 34% and 40%, respectively.

Overly reliant on LRT3. Current construction order-book stands at c.RM3.2b, of which the bulk (of >95%) is derived from LRT3 at RM3.07b providing visibility for the next four years. Note that we have factored in zero replenishment for FY22/23 as they have yet to secure any new construction projects since Dec 2016. Aside from LRT3, their two outstanding hospital projects (remaining contract value of c.RM150m) should see completion by FY22.

No change to FY22E earnings. Post results, we leave our FY22E estimates unchanged and introduce FY23E earnings of RM45m. Note that LRT3 contribution make up RM15m and RM30m to FY22-23E bottom-line, respectively.

Maintain UNDERPERFORM with unchanged TP of RM0.56 on unchanged FY22E PBV of 0.55x (-1SD below mean). Our rating is premised on its depleting construction order-book (excluding LRT3) with bleak replenishment prospects.

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

Source: Kenanga Research - 23 Mar 2021