Review

• Excluding an impairment loss of RM5.3mn for investment and advances for an expressway concession in 4Q18, PESONA recorded full-year core profit of RM13.6mn. The results came in below our expectation, accounting for 81.0% of our full-year forecast. The variance was mainly due to lower-thanexpected contribution from the construction division.

• A first and final dividend of 1sen/share was declared, matching the amount declared last year.

• YoY, FY18 core profit dropped 35.1% to RM13.6mn mainly due to higher finance cost arising from concession asset acquired in October 2017. The construction division, its biggest earnings contributor, witnessed a decline in earnings as construction operating margin dropped by 1.4%-pts to 3.4%, despite the construction revenue was 4.6% higher at RM554.5mn.

• QoQ, core earnings plunged 55.4% to RM2.2mn mainly due to lower construction progress (-6.4%), coupled with lower construction operating margin (-2.2%-pts to 2.7%).

Impact

• Following the weaker-than-expected results, we trim construction margin assumptions for various projects, and cut FY19 and FY20 earnings forecasts by 16.2% and 29.9% respectively. We introduce earnings forecasts for FY21 with a projected net earnings growth of 29.8% for FY21.

Outlook

• PESONA’s outstanding order book stood at RM1.9bn. This is sufficient to provide earnings visibility to the group for the next 2 to 3 years.

Valuation

• Maintain BUY call with a lower target price of RM0.26, from RM0.29 previously.

Source: TA Research - 28 Feb 2019