Censof Holdings - 9M12 below but long term outlook intact

Period    3Q12/9M12

Actual vs.  Expectations  The 9M12 net profit of RM4.8m was below expectations and merely accounted for 50.2% and 47.5% of ours and the street’s full year estimates of RM9.5m and RM10.1m respectively. 

Dividends   No dividend was announced during the quarter. For the full financial year, we do not expect the group to declare any dividends in FY12. 

Key Result Highlights  YoY, the 9M12 revenue was lower by 18% to RM27.1m (vs. RM32.9m previously) due to the absence of last year’s one-off of approximately RM8m in revenue (or RM2m net profit) from its Outcome Bases Budgeting (“OBB”) contract. Stripping off this one-off gain in 9M11, the group’s 9M12 net profit would still have been relatively flat on a YoY basis. Margin-wise, the 9M12 EBIT margin was lower at 18.2% (vs. 21.6% a year ago) due to 1) higher administration expenses of RM7.8m (vs. 9M11: RM4.8m) as a result of additional cost on its recent free warrant issue and more hirings due to its PERKESO’s labour intensive job; and 2) the lack of revenue contribution from the OBB project in 9M12, where it generally garners a higher GP margin of c.50% as compared to other projects.

 QoQ, despite the revenue falling by 60% to RM5.3m in 3Q12 (2Q12: RM13.3m), the net profit, however, was higher by 54% to RM1.7m (2Q12: RM1.1m) thanks to higher-margin projects recorded in the quarter compared to the previous quarter. This boosted the group’s 3Q12 EBIT margin to 35.2% as compared to 8.9% in 2Q12. 

Outlook   While the group’s 9M12 is below our expectations as a result of delays in its projects revenue recognition, the company’s long-term outlook remains intact, underpinned by i) its active tendering of contracts for both the Indonesia and M’sia markets; ii) continued projects/contracts flow from the various government agencies, e.g. PERKESO and iii) the possible implementation of GST/VAT after General Election.

Forecasts   Post-results, we have lowered our FY12E revenue by 7.1% to RM50.0m as we have realigned the projects recognition timeframe while maintaining our FY13 revenue forecast of RM72.5m. 

 We have trimmed our FY12E-FY13E net profits by -7.1% and -1.2% to RM7.5m and RM16.9m respectively (vs. RM9.5m and RM17.1m previously) after fine-tuning and imputing in a higher interest cost assumption.

Rating  MAINTAIN OUTPERFORM

Valuation    We have reduced our TP to RM0.59 (from RM0.61, previously) based on an unchanged targeted FY13 PER of 12.2x. 

Risks   Failure to secure more projects.

Delay in projects revenue recognition.  

Source: Kenanga