Period 1Q12
Actual vs. Expectations
Seremban
Engineering’s (“SEB”) 1Q12 net profit of RM2.1m came in well above our
expectation as it made up 38% of our FY12 full year estimate of RM5.5m.
Dividends SEB
declared an interim single-tier dividend of 2 sen on 7th May 2012, translating into a 4% yield.
Key Results Highlights
SEB registered a
commendable set of 1Q12 results, which was attributed to improved activities
mainly in its palm oil refineries from the overseas markets (mainly Indonesia).
Despite revenue
dipping 31% QoQ, 1Q12 net earnings actually rose 34% to RM2.1m from RM1.5m in
the preceding quarter. This was mainly due to better product & segment mix
(i.e. palm oil refinery, Oil & Gas, waste management), which pushed its PBT
margin above 10%.
On a YoY basis, 1Q12
net earnings improved significantly to RM2.1m from just RM124,449 last year,
led mainly by robust overseas sales where revenue grew by 155%, albeit the
domestic sales falling by 8%.
Outlook SEB’s
prospects remain positive on the back of steady demand and increasing enquiries
for its process equipment business especially in palm oil refinery and waste
management.
In addition,
contracts from the Oil & Gas sector is expected to contribute positively in
the upcoming quarters.
SEB recently acquired
a 40% stake in a new associate company - Selekta Spektra S/B (SSSB), whose
principal activities are the provision of landfill services and waste
management. This should improve SEB’s earnings visibility further given the
recurrent earnings quality of SSSB. The latter has entered into a concession
agreement with Majlis Bandaraya Ipoh in Nov 2011 for a period of 9 years with
an option to extend for a further 11 years.
Change to Forecasts
Maintaining our
FY12-14E net earnings of RM5.5m-RM10.1m at this juncture. Nonetheless, we may
revise up our earnings estimates should SEB records another set of sterling
results in 2Q.
Rating MAINTAIN OUTPERFORM
Valuation We
are maintaining our OUTPERFORM recommendation on SEB with a target price of RM0.55
based on 8.0x FY12 PER (in line with our small cap coverage’s average forward
PER of 8.0x).
Risks Delays
in projects execution or contracts award.
Source: Kenanga
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