INVESTMENT HIGHLIGHTS

• FY17 results slightly below the line

• But orderbook of RM6.1bn will support assumptions

• Reaffirm our projection for FYE18/FYE19

• Altogether, we downgrade our recommendation to Neutral with a TP of RM2.67 per share

FY17 results slightly below the line. SCGB’s FY17 PATAMI of RM137.8m (+11.0% YoY) went below ours and consensus’ expectations, meeting 84.5% and 100.0% of full year estimates respectively. Compared to FY16’s revenue of RM1.78bn, FY17’s revenue increased to RM2.38bn (+16.1%YoY). The increase in revenue is influenced still by higher contribution from construction segment due to better work progress of KVMRT V201/V4 (Sg. Buloh to Persiaran Dagang and Section 16 to Semantan Portal) as well as Parcel F in Putrajaya. FY17’s construction PBT of RM146.7m (+53.8%YoY) improved due to SCGB’s construction activities which are heavily concentrated in Klang Valley hence achieving economies of scale and costs reduction in logistics. The departure of our earnings forecasts compared to Street’s is due to our higher estimates for the PPA1M in Kelantan.

But orderbook will support our assumptions in FYE18 despite pre-cast slowdown. SCGB’s pre-cast segment is expected to show dovish signal as take-up rate is still soft for Housing Development Board of Singapore units. The pre-cast PBT of RM3.1m (+29.2%YoY) shows improvement but there is an oversupply for for HDB flats in few districts such as D3 (Central South, D5. (South West), D13. (Central East), D.18 (Tampines) and D.19 (Hougang). Thus, it premature to assume that property mart across the causeway is recovering. Thankfully, due to the construction orderbook size of RM6.1bn (36-months duration) SCGB will be able to meet our projections in FYE18/FYE19.

Maintain earnings forecasts. We make no changes to our projections as we believe that SCGB possesses good order book replenishment capabilities. For example, affordable public housing construction such as the Projek Perumahan Penjawat Awam 1Malaysia (PPA1M) and Projek Perumahan Rakyat (PPR) which SCGB can participate and consequently lift its orderbook size.

Recommendation. Nonetheless, we downgrade our recommendation to Neutral due to share price run-up based on SOP-derived TP of RM2.67 per share.

Source: MIDF Research - 27 Feb 2018