Period 3Q12/9M12
Actual vs. Expectations Seremban Engineering (“SEB”) posted 3Q12
net earnings of RM2.1m, which brought its 9M12 net earnings to RM5.6m.
The overall 9M12 net earnings already met our FY12 full year
estimate and hence, we have upgraded our earnings estimates accordingly.
Dividends No
dividend was announced.
Key Results Highlights The 3Q12 net earnings surged by 41% QoQ to
RM2.1m from RM1.5m, which was in line with the better sales registered and
improved net margin of 6.9%. Additionally, the cost overrun incurred in the
last quarter was not seen in 3Q12 as the projects were completed timely.
The revenue saw a 14% QoQ growth to RM30.6m from RM26.9m in
the preceding quarter. This was mainly driven by domestic sales, which improved
by 67% while its overseas markets posted a flattish sales growth.
YTD, the 9M12 net earnings of RM5.6m was more than double
from that of RM2.5m in 9M11 due mainly to the growth in the revenue by 45%. This
was attributable to higher overseasmfabrication jobs demand, particularly for
palm oil refineries in Indonesia. In fact, the overseas sales expanded by 115%
during the period.
Outlook According
to Oil World data, palm oil production in Indonesia is estimated to enjoy an
annual growth of 5.8% in CY13, which we believe will help to boost SEB’s FY13E
revenue and earnings.
As guided by management, the company is targeting to
commence its fabrication operation facility in the newly acquired land in Lumut
by 2H13.
We continue to like SEB for its positive prospects on the
back of increasing activities for its process equipment business and its
diversification plan into the O&G sector.
Change to Forecasts We are adjusting our FY12-13E net earnings higher
to RM6.3m-RM7.5m (from RM5.6m-RM6.7m) after factoring in a higher revenue growth
assumption of 8% YoY and an operating margin of ~10%.
Rating MAINTAIN OUTPERFORM
Valuation Our
OUTPERFORM rating is reiterated with a new target price of RM0.61 based on 6.5x
FY13 PER.
Our applied PER is in line with the stock’s average PER of
6.9x for the past one year.
Risks Delays in projects execution or contracts
award.
Source: Kenanga
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