Despite the sequential recovery, 3QFY21 results still greatly missed expectations, due to higher operating costs amidst the Covid-19 pandemic. Moving into the monsoon season, we believe earnings could see another sequential dip in the coming 1-2 quarters. Nonetheless, as borders gradually reopen, FY22 could post signs of a gradual recovery. Downgrade to MP and TP to RM1.00.

9MFY21 below expectations. 9MFY21 core net loss of RM14m (arrived after adjusting for unrealised forex and impairments) completely missed expectations against our full-year profit forecast of RM48m and consensus of RM28m, due to weaker-than-expected margins from higher operating costs amidst the Covid-19 pandemic. Meanwhile, although no dividends were announced in tandem with this set of results, the group did announce an interim dividend of 1.5 sen per share back on 11 Nov 2021 – which came as a positive surprise.

Sequential recovery, but weaker YoY. 3QFY21 recorded core net profit of RM14.5m – more than doubled QoQ, thanks to recovery in topside maintenance works, coupled with the improved vessel utilisation (66% vs. 50%). However, on a YoY-basis, the quarter saw lower core earnings by 58%, mainly dragged by higher operating costs amidst the Covid-19 pandemic, resulting in deteriorated margins.

Cumulatively, 9MFY21 plunged into the red, from a core profit of RM46.9m in the 9MFY20, due to delayed work orders, coupled with the aforementioned higher costs from Covid-19. Vessel utilisation was also lower at 46% vs. 56%.

Expecting weaker quarters heading into the monsoon season. We are expecting earnings to come in sequentially weaker for the coming 1-2 quarters heading into the monsoon season. Overall, the year was hugely plagued by the group’s hindered ability to fulfil work orders given stricter movement restrictions. Nonetheless, as borders gradually reopen, we are hopeful for FY22 to show signs of a gradual recovery – backed by its order-book of RM2.1b.

Downgrade to MARKET PERFORM, with a lowered TP of RM1.00 (from RM1.20 previously) – pegged to a lower PBV valuation of 0.7x at roughly 1SD below the stock’s mean valuations (from previously 0.8x at 0.5SD below mean). Post results, we slash our FY21E/FY22E earnings significantly to RM0.9m/RM44.5m (from RM49.7m/RM75m previously), accounting for weaker work orders and poorer job margins.

Although FY22 could see better earnings amidst a gradual recovery, we believe it is unlikely to match profit levels seen in the past three years. Hence, we feel that the stock’s discounted valuations from mean could be well justified.

Risks to our call are: (i) stronger-than-expected work orders, (ii) higher-than-expected margins, and (iii) higher-than-expected vessel utilisation.

Source: Kenanga Research - 26 Nov 2021