9MFY21 missed expectations with wider loss in 3Q on the back of slower-than-expected order-book recognition. Nonetheless, the group’s order-book continues to grow, to RM1.7b from RM1.4b last quarter – with majority of the jobs expected to commence only in FY22. Given repeated earnings disappointments, and above-mean trading valuations, we downgrade our call to UP and TP to RM0.63. Its recovery outlook will be heavily dependent on management’s ability to translate the growing order-book in a profitable manner.

9MFY21 missed expectations. 9MFY21 core net loss of RM21.8m (arrived after adjusting for gains on disposal, net forex, impairments, among other non-core items) missed expectations, against our full-year loss forecast of RM4.5m and consensus of profit forecast of RM13m, due to slower-than-expected order book recognition. No dividends were announced, as expected.

Widened losses sequentially. 3QFY21 quarter recorded core net loss of RM11.9m, widening 30% QoQ – dragged by slower order-book recognition in its oil and gas and renewable energy segments. YoY, the quarter plunged into losses, from a core profit of RM9.3m, similarly due to the slow order-book recognition. Cumulatively, 9MFY21 core net loss narrowed 68% YoY, given higher job flows on the back of improved activity levels.

Order-book continues to expand. The group’s order-book managed to continue to expand, to RM1,657.9m, from RM1,336m last quarter. Management has guided that project execution for a majority of the orders in hand will only commence in FY22, and hence, we expect to see some mild earnings improvement going forward on the back of this order-book recognition.

Downgrade to UNDERPERFORM, with a lowered TP of RM0.63 (from RM0.65 previously) – pegged to unchanged valuation of 0.7x FY22E PBV – broadly in-line with the stock’s mean valuations. Post results, we further tripled our FY21E loss assumption and cut our FY22E profit forecasts by 21%, to account for the slower order-book recognition.

Our call is premised on the stock’s repeated disappointment in earnings delivery, with its shares currently also trading at above-mean valuations. Its recovery outlook will be heavily dependent on management’s ability to recognise its growing order-book in a profitable manner.

Risks to our call include: (i) higher-than-expected order-book replenishment, (ii) faster-than-expected jobs execution, and (iii) lower-than-expected project costs.

Source: Kenanga Research - 23 Nov 2021