1QFY20 revenue increased by 39.9% yoy but declined by 7.7% qoq

PMHB recorded a 39.9% yoy increase in revenue in 1QFY20 due mainly to higher progress billings recognized from on-going projects. 1QFY20 revenue is however 7.7% lower qoq due mainly to lower construction progress compared to 4QFY19. The Movement Control Order (MCO) commenced in 18 March 2020 to control the Covid-19 pandemic.

1QFY20 core net profit declined by 24.4% yoy but surged by 158.9% qoq

Despite the higher revenue, PMHB recorded a 24.4% yoy decline in core net profit in 1QFY20 to RM2.4m due mainly to contributions from lower construction margin projects and the cost incurred during the MCO in March 2020. Qoq, 1QFY20 core net profit is a major reversal from the core net loss of RM4.0m in 4QFY19 (caused mainly by cost overrun from an undisclosed project and expenses incurred for the issuance of the Sukuk). PBT contribution from the concessionaire asset and maintenance business was slightly higher at RM3.1m. The effective tax rate in 1QFY20 is lower than the statutory rate. No interim dividend has been declared for 1QFY20 (1QFY19: nil).

Covid-19 pandemic expected to adversely affect 2QFY20 performance, forecasts cut

Following the implementation of MCO and Conditional MCO (CMCO), there were minimal construction activities until 31 May 2020, resulting in minimal construction billings while operating costs continued to be incurred. With 2QFY20 already adversely affected by the pandemic and assuming the operating restrictions continue to be relaxed, we cut our FY20F EPS forecast from 1.8 sen to 1.3 sen after cutting group revenue from RM628.5m to RM448.5m and construction margin from 2.3% to 1.8%. FY21F group revenue has also been cut from RM639.5m to RM629.5m and construction margin from 2.5% to 2.3%, resulting in a cut in EPS from 2.0 sen to 1.8 sen. PBT contributions from the concessionaire business are expected to remain unchanged at RM11.0m a year.

Maintain TP and BUY rating after moving PE pricing to revised CY21F EPS forecast

As FY20 has turned out to be an abnormal year for, amongst other, construction companies, we believe it is fair to move our valuation for PMHB to FY21F forecasts. As such, we are now pegging an unchanged target PE of 13.7x to our revised FY21F EPS forecast of 1.8 sen, leading to an unchanged target price of RM0.26. The share price of PMHB has rebounded from the lows during the peak of the pandemic and based on the still high total return of 12.5%, we maintain our BUY call. Outstanding construction order book remains healthy at RM1.4bn as at end-1QFY20 (end-4QFY19: RM1.6bn) while net asset per share is close to RM0.27.

Source: Mercury Research - 30 Jun 2020