4QFY21 core profit which jumped almost 3-fold to RM31.2m topped our forecasts given the higher-than-expected profit margin arising from advanced stage job claims as well as lower taxation on exemption. Although 1HFY22 is expected to be seasonally weaker, FY22 is expected to be a stronger year, given key projects that are advancing to tail-end stage which fetch higher margin. In all, we still like the stock as a niche utility infrastructure play. OP rating and TP of RM1.39 maintained.

FY21 result above forecast. 4QFY21 core profit almost quadrupled sequentially to RM31.2m, tallying FY21 core profit to RM72.4m which beat our forecast by 22%, due to higher-than-expected profit margin in 4QFY21 coupled with a tax credit of RM1.5m owing to tax exemption for ODM Power Co Ltd (ODM) concession project that brought FY21 effective tax rate to 9.6% vs. our assumption of 15%. No dividend was declared during the quarter as expected. There were two special dividends of 0.5 sen each announced in 1QFY21.

Earnings fuelled by advanced stage job claims. 4QFY21 core profit jumped almost 3x sequentially to RM31.2m from RM7.9m in the preceding quarter, although revenue only inched up 1%. This was largely due to a higher concentration of higher margin advanced stage claims from ODM and MRT2 projects, where job claims from these two projects made up 62% of the group revenue. ODM reached 75% of completion from 56% while MRT2 hit 90% from 80% previously. In addition, the 70%-owned ODM enjoys tax exemption which also explained the tax credit mentioned above as well as higher MI of RM12.7m from RM5.2m previously.

ODM’s construction profit led yearly earnings higher. YoY, due to the same reason of higher ODM’s job claim which forms part of the construction profit for the BT concession asset, 4QFY21 core profit jumped 89% from RM16.5m. Similarly, FY21 core profit leapt 30% to RM72.4m from RM55.8m as revenue grew 12% over the year. As ODM started to recognise construction profit in 4QFY20, MI jumped 179% to RM36.4m from RM13.1m in FY20

Expect a seasonally weaker 1HFY22, especially in Cambodia which is facing a raining season deterring project progress. Having said that, key projects namely ODM and Tatay projects in Cambodia, and MRT2 locally are advancing to higher stages which mean better margins in FY22. As ODM project is on-going till Oct next year, MI will continue to stay higher on construction profit from this concession project. Meanwhile, current order-book is reduced to RM1.82b from RM1.92b three months ago. In all, we keep our FY22 estimates unchanged and introduce our new forecast for FY23 where we expect earnings to grow by 15%. However, we do not expect any dividend payments in these two years.

OUTPERFORM reaffirmed. Going forth, we continue to like this niche utility infrastructure play which could potentially benefit from the revival of mega projects domestically and the fast-growing energy infrastructure development market in Indochina. As such, we maintain our OUTPERFORM rating on the stock with unchanged target price of RM1.39 which is based on 3-year moving mean of 14x FY22 PER. Risks to our call include: (i) failure to replenish order-book, and (ii) cost overruns.

Source: Kenanga Research - 30 Aug 2021