The weaker 1QFY22 core profit of RM11.6m is well expected given seasonality effect. Having said that, while 2QFY22 is likely to be another soft quarter, key projects are advancing to the tail-end stage which fetch higher margin; thus, FY22 is expected to be a stronger year. In all, we still like the stock as a niche utility infrastructure play. Maintain OP with TP of RM1.39. Ex-bonus TP is RM1.11.

1QFY22 in line. At 15% of our FY22 estimate, we deem the 1QFY22 core profit of RM11.6m as within expectation on seasonality factor as 1H of the financial year is always a weak period especially for Cambodia projects with the monsoon season affecting work progress there. No dividend was declared during the quarter as expected.

A seasonally weak quarter… 1QFY22 core profit plummeted 63% to RM11.6m from RM31.2m in the seasonally strong 4QFY21 with revenue contracting 10% to RM207.8m from RM231.9m. This was due to lower job progress billings, except for ODM Power Co Ltd (ODM)’s concession project. Its key local project MRT2 only completed 4% in job claim in 1QFY22 as opposed to 7% in 3QFY21 and 10% in 4QFY21. However, despite the monsoon season, ODM’s job claim added 16% (where the majority was land compensation claim) in 1QFY22, which was the same as 4QFY21, as it has expedited work progress to meet the completion date in Sep 2022.

…and a softer YoY results as well. YoY, 1QFY22 core profit tumbled 33% from RM17.4m in 1QFY21 to RM11.6m on lower revenue of 16% from RM248.8m to RM207.8m as job claim billings declined. Key projects ODM completed job claim of 16% to 89% vs. 18% claim in 1QFY21, MRT2 of 4% at 94% vs. 6%, and JB-Gemas double-track of 8% at 51% vs. 10%.

Looking forward to a better FY22. While next quarter 2QFY22 is likely to be another seasonally weak quarter, key projects namely ODM and Tatay projects in Cambodia, and MRT2 locally advancing to higher stages which mean overall better margins in FY22. As ODM project is on-going till Sep next year, MI will continue to stay higher on construction profit from this concession project till 1QFY23. Meanwhile, current order-book is reduced further to RM1.58b from RM1.76b three months ago. In all, we keep our FY22E/FY23E estimates unchanged and 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. On the other hand, the 8-for-2 bonus shares with one free warrant will go ex-entitlement on 09 Dec; ex-bonus TP will be adjusted to RM1.11 and ex-all TP to RM1.01. Given the warrants have seven year to maturity, our ex-bonus TP will be RM1.11. Risks to our call include: (i) failure to replenish order-book, and (ii) cost overruns.

Source: Kenanga Research - 29 Nov 2021