1QFY22 CNL of RM11.8m missed expectations due to weaker-than-expected PBT contributions from its crane and Cambodian airport divisions. Consequent to the disappointment, we reduce FY22E/FY23E earnings by 92%/50% after accounting for lower progress billings at its crane division and reduced FY22E/FY23E Cambodian passenger traffic to 1.0m/2.0m (from 3.5m/7.0m). Maintain MP but with lower TP of RM0.535 (from RM0.565).

1QFY22 below expectations. 1QFY22 CNL (core net loss) of RM11.8m missed our/consensus full-year CNP projections of RM25.5m/RM35.1m due to weaker-than-expected PBT contributions from: (1) crane division, and (2) Cambodian airport concession division. The crane division was affected as some operational staff was infected with Covid-19 during the quarter while its Cambodian airports disappointed from weaker-than-expected tourist arrivals. No dividends as expected.

Highlights. QoQ, 1QFY22 CNL of RM11.8m sank into the red (versus a CNP of RM2.1m in 4QFY21) mainly due to weaker margins caused by fixed overheads on the back of weaker revenue (-42%) dragged by its construction and crane division. YoY, 1QFY22 CNL of RM11.8m widened by 107% also due to similar reasons i.e. weaker revenue (- 20%).

Passenger traffic taking longer than expected to recover. In 1QCY22, Cambodian airports recorded a mere 195k passengers despite reopening its borders (without quarantine needed) since 15 Nov 2021. This is way below our FY22E passenger traffic forecast of 3.5m. Consequently, we reduce our FY22E/FY23E passenger traffic forecast down to 1.0m/2.0m respectively (previously 3.5m/7.0m).

Construction division to remain in loss amidst weakening orderbook. Outstanding order-book continues to deteriorate, to RM0.82b (- 0.5% QoQ; -13% YoY) despite RM50.3m of new orders secured YTD. Its outstanding order-book has been on a downtrend since 2018 due to the lull in replenishments. Out of this order-book sum, RM0.529b is from the crane division while the rest are from construction. Note, orderbook currently provides <1x revenue cover.

Post earnings, we reduce FY22E/FY23E earnings by 92%/50% on weaker crane revenue and concession contributions arising from the reduced passenger assumptions. Consequent to the earnings downgrade, we reduce SoP-TP to RM0.535 (from RM0.565). Market Perform call remains unchanged.

With little visibility of earnings reverting back to pre-Covid era, we foresee minimal catalysts for the group at this juncture. That being said, we note that there could potentially be an acquisition by the group given the shored up cash level (c.RM250m) at the holding company (from FAVCO’s special dividend and recently completed rights issuance). However, we remain unexcited for now as the acquisition might not be sizeable enough to pivot the group’s earnings profile back into a growth path – given its languishing construction segment.

Risks to our call include: (i) lower-than-expected order-book replenishment target, (ii) delays in construction progress, and (iii) sharp spike in raw material costs.

Source: Kenanga Research - 1 Jun 2022