INVESTMENT HIGHLIGHTS

• Results inline

• Pre-cast segment still in the dark…

• …but earnings projection remains intact

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

Results slightly below the line. 3MFY18 earnings of RM35.8m (+3.0%YoY) in-line with our expectation but lagged the Street’s. Its net profit accounted for 23.0% and 19.1% of ours and consensus’ full-year forecasts respectively. SCGB‘s 3MFY18‘s total revenue of RM529.8bn (+26.2%YoY) came in stronger as a result of better than expected construction revenue of RM492.1bn (+40.3%YoY) influenced by improvement in higher progress billings rate for International School of Kuala Lumpur and Parcel F Putrajaya. Our expectation deviated from the Street’s as we have predicted a slightly higher progress billings schedule for SCGB’s project.

Precast segment still in the dark… Although Housing Development Board of Singapore is still launching units, we fear that he construction of those units might face slight delay due to insipid property mart across the Causeway. It was reported in ChannelNews Asia that HDB resale value declined to 0.8% in 1QFY18. However, HDB launched 4,381 flats under the Build-to-Order scheme in February. Hopefully, this would translate into higher sales for SCGB precast segment. Additionally, steel bar prices increased hence impacting overall cost diverging from tender prices. As a result, the PBT of precast segment registered a dismal RM3.6m (-77.2%) with its PBT margin compressed to merely 9.7% (- 13.3ppts).

…but earnings projection remains intact. Despite that, we reiterate our earnings projection on the account of sturdy orderbook of RM6.1bn. So far, SCGB has clinched RM542m worth of projects for the year which is 36.1% of its FYE18 orderbook replenishment target of RM1.5bn.

Recommendation. We maintain our TP of RM2.67 implying +20.8% upside per share based on sum-of-parts methodology. We surmised that construction companies will face headwinds but only temporarily pending announcements on big ticket projects i.e. HSR and MRT Circle Line.

Source: MIDF Research - 18 May 2018