Period 1Q12
Actual vs. Expectations
The 1Q12 net profit
(NP) of RM17.8m was below expectations, making up only 15% of our full year estimate
(RM115.7m) and 14% of the consensus’ full year estimate (RM129.0m).
The variance to our
net profit estimate was mainly due to the delay in the recognition of the
Gorgon project in the current quarter, which led to overall lower bottom line
earnings for the company.
Dividends No
dividend was declared in the quarter.
Key Results Highlights
YoY, the 1Q12 NP
decreased by 59% due mainly to a high base effect from the earnings earned in 1Q11,
which saw two quarters contribution of the Gorgon project then after it was
delayed in 2010.
QoQ, the group’s NP
was down by 9% mainly due to lower margins from the oil and gas division which were
hit by 1) less than optimal project mix given that Gorgon did not come in for
the quarter and 2) continual losses from the Engineering division due to a
project which had continued to see cost overruns.
Outlook Short-term project replenishment will be
fuelled by domestic projects like the North Malay Basin and pipeline
replacement due to Petronas’ asset rejuvenation plans.
Longer term, its pipe-coating
plant with Louisiana (JV with Insituform) will enhance its reach in the Gulf of
Mexico.
The order book
currently stands at RM1.2b (63% oil and gas/ 21% renewable energy/ 16%
industrial and trading).
Change to Forecasts
We are maintaining
our FY12E NP assumptions given that the Gorgon project will kick in likely in 2Q12E.
However, we are
trimming our FY13-14E NP marginally by 5% p.a. to RM120.8m and RM125.7m respectively
as up to now, the company has been unable to win major international
pipe-coating projects, which typically carry higher margins. As such, we have
reduced our GP margin assumption to 28% (from 29%).
Rating MAINTAIN OUTPERFORM
Valuation We
have rolled forward our valuation basis to FY13.
Given that earnings
visibility looks uncertain and volatile in the near-term, we have downgraded
our target PER to 14x (from 15x). With that our target price is downgraded to
RM2.23/share (RM2.30 previously).
Given the 20% upside,
we are maintaining our call.
Risks Inability to secure more contracts going
ahead.
Lower-than-expected
margins.
Source: Kenanga
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