Period 1Q13/3M13
Actual vs. Expectations
The reported 1Q13 net profit of
RM0.6m came in way below our expectations, accounting for only 2.0% and 2.5% of
ours and the street’s full-year estimates of RM27.1m and RM23.9m respectively.
Dividends No
dividend was declared during this quarter as expected.
Key Results Highlights
YoY, the revenue drop by 41% to RM32.4m due to the
delay in site possession for the Gleneagles hospital project LRT depot works
coupled with a depleting order book replenishment. The drop in revenue has also cut the net
profit by 59% to RM0.6m. The net margin was also down to 1.9% from 2.8% due to
a higher operating cost.
QoQ, Fajar’s earnings returned to the black with a
small net profit of RM0.6m as compared to a net loss of RM20.1m in the
preceding quarter. This was mainly due to higher revenue recognised from
delayed construction projects in the LRT project earlier as the works started to
pick up pace from May 2012.
Outlook Moving forward, while there is lower
visibility in order book replenishment
in near-term, Fajar should be focusing in executing its RM850m outstanding
order book, which could probably underpin its earnings visibility for another
three years.
Change to Forecasts
Nonetheless, we have
slashed our FY13 earnings estimates by 59% from RM27.1m to RM11.2m as we expect
its construction projects to continue their progress at a slower pace due to
site possession issues. We are also not expecting any more new contract awards
for FY13.
Going into FY14, we
would expect a better recovery from Fajar as we believe that Fajar would be
able to go on full swing execution on its remaining orderbook of c. RM850m.
Hence, we assumed a positive growth of 75% in its FY14 earnings from RM11.2m to
RM19.6m.
Rating Downgrade to UNDERPERFORM
We are downgrading
our recommendation to an UNDERPERFORM from a MARKET PERFORM as our new Target
Price below is substantially below the current share price.
Valuation We
have reduced our Target Price by 28% to RM0.51 from RM0.71 after our estimates
cut above and as we rolled forward our valuation from FY13 to FY14 based on an
unchanged 5.0x PER pegged to its FY14E EPS.
Risks Delay
in LRT works by the main contractors.
Escalating building
material prices
Source: Kenanga
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