INVESTMENT HIGHLIGHTS

• 1HFY17 results below the target

• Lower progress billings influenced tepid bottom line

• Reaffirm our earnings estimates for FYE17/FYE18 due to robust orderbook of RM1.8bn

• Hence, we maintain our recommendation to BUY with a TP of RM0.40 per share

1HFY17 results below the target. VIHB earnings of RM10.9m (- 73.0%YoY) came in below expectation registering only 11.0% of ours and consensus’ expectation. The tepid results were impacted by lower progress billings signalling the gaps between construction stages. VIHB’s projects are concentrated in building engineering hence we are not overly concerned on the compressed earnings as upcoming quarters will even out FYE17’s expectations.

Lower progress billings influenced tepid bottom line. Although earnings came in weak, we are convinced that higher billings rate beckons as total; (i) inventories, (ii) receivables and (iii) amount due from customers are RM326.1m (-2.8%YoY) on the back of RM248.4m current working capital. Lower progress billings as mentioned in our last report are also attributable to certifications for stages of completion.

Reaffirm our earnings estimates for FYE17/FYE18 due to robust orderbook of RM1.8bn. Nonetheless, we reiterate our FY17F/FY18F earnings projections. Notably, VIHB has maintained its strong margin profile i.e. PATAMI margin of 12.5% and operating margin of 21.4% above it peers in KLCON Index of 6.1% and 11.1% respectively. Apart from that, its orderbook is RM1.8bn indicating 24-months of construction backlog. Additionally, we are optimistic of the possibility of VIHB clinching the Sultan Ismail Petra Airport capacity expansion sub-contract totalling RM450m. MAHB has quipped that the expansion is slated to commence in FY18. Hence, we are still maintaining our positive stance on VIHB due to its potential to replenish its orderbooks with packages >RM300m with the backing of China Railways Construction Corp Ltd. (CRCC) with healthy marginal profiles.

Recommendation. On the basis thereof, we reaffirm our BUY recommendation with a TP of RM0.40 per share based on FYE17 sum-ofparts (SOP).

Source: MIDF Research - 5 Sept 2017