CUSCAPI - Hiccups again!

Period    1Q12

Actual vs.  Expectations

 1Q12 net profit (NP) of RM567k was far below our full year NP forecast of RM10.1m.

Dividends   No dividend was announced during the quarter.

Key Result Highlights

 The poor results were mainly due to the lower sales and delayed materialisation of certain projects, which were supposedly to be booked into the 1Q12 results. 

 Revenue declined 21% YoY. NP dropped by -71% YoY due mainly to the lower revenue, but was mitigated partially by higher non-recurring revenue of RM4.0m, which was the partial revenue of an upgrade project for a key customer in Malaysia. Stronger revenue registered by SEA (+34% YoY) and China (+114% YoY) mitigated the greater drop in Malaysia (-40% YoY). 

 QoQ, NP dipped by 69% due to higher operating expenses incurred as well as one-off expenses and salary adjustment for staffs.

Outlook   We believe the company will continue to strengthen contributions from its overseas units as their contributions improved from 19% of the group’s revenue in 1Q11 to 38% in 1Q12.

 We are still looking forward for Cuscapi to conclude a project with one of the biggest fast-food restaurant chains in Philippines this year, which has been delayed since our initiation coverage in Aug 2011. 

 New products in the pipeline are also expected to be launched in 2H12. 

Change to Forecasts

 Maintaining our FY12-FY13 forecasts at this juncture. However, with the potential delay in securing some projects after three consecutive quarters of disappointing results, we may downgrade our earnings estimates in 2Q12 for FY12 and FY13 to RM7.3m (-16% YoY) and RM8.5m (+16% YoY) from RM10.1m (+17% YoY) and RM12.1m (+20% YoY) currently if there are no further improvements in the company’s earnings then. 

Rating  DOWNGRADE TO MARKET PERFORM

Valuation    Due to the weaker-than-expected results, which we believe will hurt investors sentiment, we have downgraded our TP to RM0.36 (from RM0.43 previously) based on lower targeted PER of 8.6x (as opposed to 10.4x previously) over FY12 EPS of 4.1 sen. 

Risks   Delay in its projects implementation 

Source: Kenanga