INVESTMENT HIGHLIGHTS

• Results met expectation

• Margin step-up buoyed earnings

• Earnings forecast remains intact

• Altogether, we maintain our NEUTRAL recommendation with an adjusted TP of RM2.03 per share

Results met expectations. 1QFY17 earnings of RM34.6m (+19%YoY) met expectations. Its net profit accounted for 22% and 28% of ours and consensus’ full-year forecasts respectively. Revenue of RM419.6m (- 1.0%YoY) stagnated but supported by cost-cutting measures resulting in net margin of 19.0%. Construction segment’s weak revenue of RM350.7m (-6.0%YoY, 83.5% of TR*) was balanced by precast segments revenue which came in strong at RM68.7m (+36.0%YoY, 16.3% of TR).

Margin step-up buoyed earnings. Earnings are largely influenced by the improvement in pre-cast segment accounting for RM13.1m (+13.9% YoY, 37.8% of TPBT*). However, considering the construction segment experiencing a stumbling block of RM21.5m (-17.3%YoY, 62% of TPBT) we are cautious on billings gap due to project completion. Recall, that despite winning jobs such as the MRT Viaduct package worth RM1.2bn from Sg. Buloh to Persiaran Dagang, Sri Damansara, the duration of the contract is 5-years. Thus, accretion to quarterly earnings would be just RM6.0m on the back of 10.0% margin. To-date SCGB has secured RM900m worth of jobs heaving orderbook to RM4.6bn from RM3.5bn. In sum, SCGB must win smaller jobs with shorter duration to support earnings growth for its construction segments.

Impact on earnings. We make no changes in our earnings estimates; we will strongly consider revising our valuation if the prospect of sales of pre-cast segment product to Singapore improves from higher HDB unit launches. In mid-May, Housing Development Board of Singapore launched 8,748 flats for sale under Build-To-Order (BTO) and Sale of Balance Flats (SBF) exercise. Funding are available through deferred downpayment scheme (DDS) and temporary loan scheme (TLS). Hence, we forecasts that the pre-cast segment’s revenue will continue to grow by +2.5% quarterly and maintain its PBT margin.

Recommendation. Altogether, we maintain our Neutral recommendation with an adjusted SOP-based target price of RM2.03 per share.

Source: MIDF Research - 26 May 2017