KEY INVESTMENT HIGHLIGHTS

• Earnings lagged expectation

• Construction revenue declined -29.0%yoy in 3QFY20

• Outstanding order book stood at RM7.5b

• Property division performance remains disappointing

• Revised earnings downwards

• Downgrade to NEUTRAL (from BUY) with lower TP of RM3.35 (from RM3.70)

Earnings lagged expectation. Total revenue was down by - 47.0%yoy to RM549.90m in 3QFY20. Moreover, its 3QFY20 earnings dropped -77.7%yoy to RM40.23m. Cumulatively, its 9MFY20 earnings declined -25.4%yoy to RM389.02m which lagged our expectation as it accounted for only 59.8% of full year FY20 earnings estimate. The lower than expected earnings was attributable to the MCO implementation which also led to (1) cessation of almost all construction and properties activities, and (2) much lower traffic volumes on its toll roads.

Construction revenue declined -29.0%yoy in 3QFY20. Its construction segment reported RM694.83m revenue in 3QFY20, lower by -29.0%yoy compared to RM978.35m in 3QFY19. The contraction in revenue was mainly on the back of the nationwide MCO lockdown. However, only critical construction works were allowed to continue uninterrupted, i.e. underground tunneling works and critical long-span launching above ground works for the MRT2 project. On another note, it is worth noting that PTMP PDP agreement is expected to be signed soon. We understand that the recent change in the Federal government could delay some components within the PTMP, but the Penang South Reclamation (PSR) component is likely to go ahead pending the State’s final decision. The PDP agreement is now expected to be signed in 3Q this year.

Outstanding order book stood at RM7.5b. The current order book is estimated to provide earnings visibility of between 2.0 to 2.5 years. The broad breakdowns of the order book are (1) MRT2 project accounts for circa 70% of the order book value, and (2) overseas projects comprise about 17%.

Source: MIDF Research - 25 Jun 2020