INVESTMENT HIGHLIGHTS

• Earnings below expectation, accounting only 79.5% of our full-year estimate

• Engineering and Construction segment (E&C) still the largest contributor to revenue

• Property segment remains weak, due to soft market

• We revised our earnings estimate by -40.9% for FY19F

• Downgrade to NEUTRAL with an adjusted TP of RM0.88

Below our expectation. The cumulative 12MFY18 earnings lagged our expectation accounting for 79.5% of yearly estimate, but within consensus expectation at 95.0%. In 4QFY18, total revenue upped +8.5%, underpinned by higher progress billings from the local infrastructure and building projects.

Engineering and Construction segment (E&C) remained as key contributor. Notably, E&C represented approximately 87% of the group’s revenue, underpinned by its sizeable order book. Whilst revenue was stronger, we take note of the lower (headline) earnings recorded at RM3.5m in 4QFY18 (vs RM133.5m in the same period last year). In recognition of this, we learned that finance cost and impairment (of unsold property stocks) combined amount were significantly high in the quarter, leading to -97.4%yoy decline in earnings. Consequently, cumulative PATAMI was also lower at RM111.8m (-51.0%yoy) in 12MFY18.

For property segment, revenue dipped -40.1%yoy in 12MFY18, due to lower sales volume logged in the period. We noted that the drop was underpinned by low take-up rate of available units coupled with the absence of new launch during the year. Cumulatively for 12MFY18, its operating profit took a beating, to record -52.9%yoy lower operating profits due to higher finance cost and additional provisions. The provisions were composed of impairment of unsold property stocks and undeveloped land amounting to RM19.0m.

Changes to our estimate. Given the earnings deviation, we believe adjustment to our earnings estimate is necessary. Accordingly, we revised down our earnings estimate by -40.9% for FY19F as we impute changes on margins, while introducing our estimate for FY20F.

Recommendation. We roll over our valuation to FY20. Our TP is adjusted lower to RM0.88, pegging the FY20EPS to PE of 11.0x.

Source: MIDF Research - 1 Mar 2019