Review

• PESONA’s 9M18 core profit of RM11.4mn came in within our expectation but above consensus forecast, accounting for 66.2% and 80.2% of ours and consensus full-year estimates. Supported by strong YTD construction job wins of RM919.9mn, we expect 4Q18 bottom line to improve further QoQ.

• YoY, 9M18 net profit decreased 33.2% to RM11.4mn, dragged mainly by lower construction operating margin, which contracted by 1.6%-pts to 3.6% due to higher construction cost and depreciation charges. This was partially offset by higher contribution from student hostel concession, which saw its 9M18 operating profit surge 213.7% to RM14.9mn as the concession only started to contribute positively since 2Q17.

• QoQ, while 3Q18 revenue was 3.8% lower at RM137.9, net profit jumped 36.2% to RM4.9mn. Despite softer construction revenue for the reporting quarter (-4.2% at RM131.1mn), the construction operating profit improved by 15.7% to RM6.5mn as the construction margin rebounded further by 0.8%-pts to 4.9%.

Impact

• Maintain FY18 to FY20 earnings forecasts.

Outlook

• PESONA’s outstanding order book improved from RM1.6bn a quarter ago to RM2.0bn. The outstanding order book is sufficient to provide earnings visibility to the group for the next 2 to 3 years.

• While 9M18 construction revenue was 4.1% lower at RM431.8mn, the management expects FY18 full-year construction revenue to increase as compared to last year.

Valuation

• Maintain BUY call with an unchanged target price of RM0.28.

Source: TA Research - 29 Nov 2018