KNMG’s  1H13  net  profit  of  MYR13.6m  was  below  our  but  in  line  with consensus  forecasts,  at  merely  25.7%  of  our  and  48.1%  of  consensus full-year  estimates.  Correspondingly,  we  lower  our  earnings  forecasts by 22.6% for FY13 and 20.7% for FY14. Given that the stock has dipped by  some  24.5%  since  our  downgrade  to  Sell  in  June,  we  upgrade  the stock to NEUTRAL, with a revised FV of MYR0.40 (from MYR0.42).

- Better  q-o-q  but  still  weak  overall.  KNMG’s  1H13  net  profit  of MYR13.6m (+413.4% q-o-q, -80.2% y-o-y) was below our but in line with consensus forecasts,  accounting  for  merely  25.7%  of  our  and  48.1%  of consensus  full-year  estimates.  The  weak  profit  was  largely  attributed  to weaker  revenue  (-12.3%  q-o-q,  -21.6%  y-o-y).  During  the  quarter,  the company had recognized some MYR7.4m in reversal of tax provision  at its  foreign  subsidiary  and  some  MYR3.4m  in  deferred  taxes.  Stripping out  both  items,  KNMG’s net profit  would  have  been  much  lower  q-o-q and y-o-y.

- Lowering  our  estimates.  Given  the  uncertainties  facing  the  company, including: i) the continuity of the Peterborough project, ii) weak prospects for  its  orderbook  replenishment,  and  iii)  weak  operational  capability  to execute its projects, we lower our FY13 and FY14 revenue forecasts by 12.9%  and  14.5%  respectively.  Consequently,  we  reduce  our  earnings forecasts by 22.6% for FY13 and 20.7% for FY14.  

- Upgrade to NEUTRAL. Given that the stock has dipped by some 24.5% following  our  downgrade  to  Sell  in  June,  we  upgrade  the  stock  to NEUTRAL. Our new MYR0.40 FV (from MYR0.42) is pegged to 9x FY14 EPS (previously 9x of 12-month forward earnings).  

Source: RHB