Results Review

• While Pesona’s 1H17 net profit of RM12.1mn made up 36.6% and 38.1% of our and street’s estimates, we deem the results to be within expectations as we expect a stronger performance in 2H17 given i) 1H17 was affected by holiday breaks during Chinese New Year and Hari Raya Aidilfitri; and ii) progress for majority of its projects accelerates.

• No dividend was declared in the reporting quarter, versus 1sen/share declared in the corresponding period last year. The group has turned into a net debt position end of last year from a net cash position due to a significant increase in working capital requirement after securing exceptionally huge amount of new contracts worth RM1.8bn in 2016.

• YoY, 1HFY17 net profit was merely 2.5% higher despite the revenue surged 85.0% to RM341.5mn as the operating margin dropped 3.9%pts to 5.2%. This was mainly due to higher depreciation charges of construction equipment as compared with the corresponding period last year.

• QoQ, 2QFY17 net profit was marginally higher by 0.7% at RM6.1mn as revenue increased by 12.8% to RM181.mn. The 2QFY17 operating margin eased by 0.8%pts to 4.8% compared with the immediately preceding quarter.

Impact

• No change to our FY17 to FY19 earnings forecasts.

Outlook

• Its outstanding order book stood at RM1.7bn. This could last the group for the next 3 years.

• Risks to earnings include potential worsening of labour supply issue and price of steel reinforcement bars remain elevated after the surge in steel bar price from about RM2,000/MT to approximately RM2,450 lately as these would negatively affect the construction margin and potentially delay the overall completions of projects.

Valuation

• Maintain our BUY call with an unchanged target price of RM0.78, based on 14x CY18 EPS.

Source: TA Research - 28 Aug 2017