Cuscapi Bhd - Weaker profits but sales rising

Period   2Q12

Actual vs. Expectations

The 1H12 net profit (NP) of RM3.6m was below our expectation, making up only 35.6% of our full year forecast of RM10.1m. This was mainly due to lower sales and delayed materialisation of certain projects.

Dividends  No dividend was declared for the quarter.

Key Results Highlights

1H12 revenue jumped by 15.9% YoY, attributable to higher sales from all regions (Malaysia, +10.4% YoY, Other South East Asia regions, +41.5% YoY and China, +12.1% YoY).

The better revenue in 1H12 was also mainly due to improved sales in the 2Q12, where sales rose 64.5% YoY. This helps to offset the poorer performance in 1Q12. There were also several new projects secured in 2Q12 as well. 

However, the 1H12 NP was down by 27.1% due to higher operating expenses arising from capacity expansion with the opening of 5 regional offices in new markets in the past one year.  

Outlook  We believe the company will continue to strengthen the contributions from its overseas units. In fact, contributions from overseas improved from 30.2% of the group’s revenue in 1H11 to 33.6% in 1H12.

We are still looking forward to see Cuscapi concluding a project with one of the biggest fastfood restaurant chains in Philippines by end of this year, which has been delayed since our initiation coverage in August 2011.

 

Change to Forecasts

Due to the disappointing earlier few quarterly results from the company, we are revising down our previously optimistic earnings estimates of RM10.1m-RM12.1m for  FY12-13E to RM8.9m–RM11.4m, representing downgrades of 11%-6% respectively.

Rating  Maintaining MARKET PERFORM 

That said, we reckon Cuscapi could still see stronger than expected growth in the future, especially if it is able to secure the abovementioned contract with the Philippines fast food chain store. 

Valuation   In line with our lower earnings forecasts, our TP should have been downgraded from RM0.36 to RM0.33 based on a 2-years average PER of 8.5x. However, due to us rolling over the valuation basis to FY13, our TP saw a net upward adjustment to RM0.41.

Risks  Delay in its projects implementation.

Source: Kenanga