INVESTMENT HIGHLIGHTS

• Results slightly below the line

• Pre-cast segment numbers still anaemic

• Earnings forecasts unvaried

• Nonetheless, we maintain our BUY recommendation with TP of RM2.67 per share

Results slightly below the line. 9MFY17 earnings of RM106.0m (+16%YoY) slightly below expectations, accounted for 65.1% and 70.7% of ours and consensus’ full-year forecasts respectively. SCGB‘s 9MFY17‘s total revenue of RM1.3bn (+7.0%YoY) came in strong as a result of better than expected construction revenue of RM1.21bn (+16.9%YoY), influenced by improvement in higher progress billings rate for KVMRT V201 Package (Sg. Buloh-Persiaran Dagang) and Parcel F Putrajaya.

Pre-cast segment numbers still anaemic. The pre-cast segment is impacted by the weak demand from Housing Development Board, Singapore despite showing healthy launching rates. The slow-down has influenced pre-cast segment heavily as it contributed only RM19.6m (- 75.0%) to revenue on the back of 12.0% margin, a decline of -10.9ppts from 2Q17. Its weak performance is evidential of the fallow period for construction - signalling dismal property mart across the Causeway.

Earnings forecasts unvaried. We make no changes in our earnings estimates. We are not overly concern about the construction segment as the orderbook of RM6.8bn is creating >36 months construction backlog or 3.1x total revenue cover for FYE18. Moving forward we reckon that clinching the BRT project from Klang to Kuala Lumpur would be a game changer for SCGB as this provides earnings upside to our assumptions. Notably, its return on asset is +8.2% above the WACC of 6.7% indicating the company is pushing hard to improve is asset efficiency and reducing its liabilities.

Recommendation. Altogether, we maintain our BUY recommendation with an SOP-based target price of RM2.67 per share. Year-to-date, SCGB share price has increased by +44.4%.

Source: MIDF Research - 21 Nov 2017