INVESTMENT HIGHLIGHTS

• FY17 Results below expectations

• Earnings estimates changed to mirror a slower pace of construction billings

• Margin profiles indicate intrinsic capabilities

• Nonetheless, we reiterate our BUY stance with an adjusted TP of RM0.23 per share

FY17 Results below expectations. FY17 earnings came in below expectations. VIHB’s FY17 earnings of RM14.5m (-73%YoY) came below with our estimates. The striking deviation was due to lower revenue recognition from projects due to progress billings. We believe that the slower progress billings cycle has afflicted VIHB due to a heightened risk/reward sentiment for property mart and mixed development.

Earnings estimates changed to mirror a slower pace of construction billings. We fine-tuned to our assumptions as we believe that FYE18 could be a better year for VIHB to recognize its billings for is orderbook level but the progress will be even slower compared to what we have reported before. Thus, we trim our earnings forecast for FYE18 by -40.0% from RM79.9m to RM46.8m to reflect slower billings recognition.

Margin profiles indicate intrinsic capabilities. To balance our view, VIHB margin profile is attractive – illustrating that the management are capable to defend their pricing albeit grim sector condition. Over the past 7 quarters, VIHB’s operating margin and net margin has upped its KLCon Index peers (Figure 1 & 2). Furthermore, amongst its peers of similar market capitalization between RM198m to RM441m, we believe its fundamental are still intact with ample finance headroom. Its debt-toequity ratio is just 6.7%. (Figure 3) Notably its receivables and amount due from clients amounted to RM347.5m indication accretion to earnings in upcoming quarters. Furthermore, its orderbook stands at RM1.8bn or 5.0x FYE19 revenue estimates over 36 months.

Recommendation. The reduction in earnings resulted in changing our valuation methodology to reflect the cyclicality of progress billings that we have noticed in our coverage for small caps construction companies. We reaffirm our BUY recommendation with an adjusted TP of RM0.23 per share based on PER on the basis of 17x PE which is the mean of FBMKLCI and imputed an enlarged share base as well as rolling over FYE19 EPS forecast of RM0.0134 sen. Note that, the 11-year average for KLCon Index is 23.3x.

Source: MIDF Research - 1 Mar 2018