1Q14 core net profit of MYR11m accounts for 15% of our 15- month FY14 earnings forecast.

Bagging the on-going Saudi Arabia T&I tender is key to further re-rating.

Maintain BUY and MYR1.85 TP, pegged to 14x FY15.

What’s New

1Q14 core profit was within our expectations, on the back of a 35% YoY/1% QoQ decline in core earnings. Headline net profit included a MYR7m one-off loss, mainly related to the listing exercise.

What’s Our View

The underlying YoY weakness in core earnings was largely due to the higher operating expenses related to the low utilisation of its pipelay unit; KL 101. The vessel, delivered in 2012, was immobilised since Nov 2013 for slight maintenance works in preparation for the PETRONAS T&I job in Jun 2014. The lower revenue from installation and construction services (-50% YoY) also contributed to the weaker YoY earnings.

Our forecasts are unchanged. Trend-wise, we expect 2Q performance to mirror 1Q before earnings pick up from 3Q as contributions from PETRONAS T&I works kick in. In the meantime, it has seven on-going short tenders worth MYR150m as it aims to keep utilisation reasonably high.

The Saudi Arabia T&I job is still pending and the award will be announced soon. Barakah is in contention with 2 tenderers for this job, of which one of them is an incumbent. Securing this job win worth about MYR2-2.5b would be a major positive to earnings and franchise. Our back of envelope calculation suggests an additional MYR50-70m p.a to net profit and potentially a 51% rise in target price.

Source: Maybank Research - 26 Feb 2014