KNMG’s 1QFY13 core net profit of MYR2.2m was below expectation, accounting  for  merely  2.7%  of  our  and  2.6%  of  consensus’  full-year estimates.  Incorporating  the  weaker  1QFY13,  we  retain  our  FY13 revenue  forecast  but  trim  our  FY13  net  profit  forecast  by  12.3%  from MYR81m to MYR71m. These lead to a lower FV of MYR0.59 (previously MYR0.63), based on 10x the stock’s 12-month forward earnings. 
 
- Disappointing numbers. KNMG’s 1QFY13 core net profit of MYR2.2m was below our and consensus expectations, accounting for merely 2.7% of  our  and  2.6%  of  the  respective  full-year  estimates.  Its  revenue  of MYR489.6m was weaker by 16.4% y-o-y, which together with the much weaker  operating  profit  (-169.7%  q-o-q,  -50.5%  y-o-y),  resulted  in earnings plunging by 86.9% y-o-y.

- Weaker  sequentially.  Compared  to  the  previous  quarter,  revenue  was 17.8%  lower  q-o-q  due  to  the  recognition  of  fewer  jobs  from  its  Asia  & Oceanic business while its business in America was weighed down by its South  American  operations.  The  lower  revenue  coupled  with  poorer operating  margins  resulted  in  a  feeble  core  net  profit,  which  tumbled 74.9% q-o-q.   

- Trimming  FY13  earnings  estimate.  Incorporating  the  weaker  1QFY13 numbers  into  our  estimates,  we  retain  our  revenue  forecast  but  nudge down our net profit forecast by 12.3% from MYR81m to MYR71m.  

- Maintain NEUTRAL. In line with our earnings downgrade, we lower our FV to MYR0.59 (previously MYR0.63), pegged to 10x on the stock’s 12-month forward earnings. We still have concerns that delays in its projects and thinner margins recognized would continue to plague the company’s earnings outlook in the near term. 

Source: RHB