Review

• PESONA’s 9M19 net profit of RM15.1mn came in within our expectation, accounting for 68.8% of our full-year forecast.

• 9M19 net profit surged 32.3% to RM15.1mn despite overall revenue was 3.0% lower at RM438.2mn. The better earnings came mainly from higher construction operating margin which improved by 1.3%-pts to 4.9%.

• QoQ, net profit dropped 18.9% to RM5.3mn, in line with a 17.8% decline in the quarterly revenue to RM142.0mn. The immediate preceding quarter was boosted by higher contribution from the i-City mall project. While the overall net profit was lower on sequential basis, the construction operating margin improved further to 5.4%, the highest since 4Q17.

Impact

• Maintain our FY19 to FY21 earnings forecasts.

Outlook

• PESONA’s outstanding order book eased from RM1.9bn a quarter ago to RM1.7bn, which translates into 3.1xFY18 construction revenue. This is sufficient to provide earnings visibility to the group for the next 2 years.

• The student hostel concession is expected to provide a stable recurring income stream to the group.

Valuation

• No change to our target price of RM0.31, based on SOP valuation. Maintain Buy

Source: TA Research - 29 Nov 2019