Kelington Group - 3Q12 results below expectations

Period    3Q12/9M12

Actual vs. Expectations     The group’s 9M12 earnings of RM4.0m was below expectations, accounting for 54% and 48% of our and the street’s full year estimates of RM7.4m and RM8.4m respectively. 

Dividend    No dividend was announced during the quarter.

Key Result Highlights    The 9M12 group revenue decreased 31% YoY due to the timing differences between completed projects and new projects that were still in their preliminary stages. Meanwhile, its net profit declined substantially by 29.3% YoY to RM4.0m due to the higher administrative expenses (personnel costs and integration costs of its newly acquired subsidiary, Puritec Technologies (S) Pte Ltd in the 1H12). This also resulted in the PBT margin dropping 0.5ppt to 6.2%.  

 YoY, its revenue contribution from Malaysia increased by 3% to RM32.2m due to the contribution from its newly acquired subsidiary, Puritec Technologies PL. However, the revenue contributions from China and Singapore declined 34% and 28% respectively due to the timing differences between completed projects and new projects that were still in their preliminary stages. For Taiwan, its revenue decreased by 8% due to the above reason as well as the fact that its key base build project here for a touch screen panel application has had almost been completed. Meanwhile, the 3Q12 group revenue rose 9.7% to RM26.4m while NP decreased by 8.9% to RM1.5m due to a higher taxation charge incurred in the quarter (RM0.4m vs. RM0.1m previously).

Outlook   The coming quarters may be more challenging due to the continued uncertainty and bearishness in the global economy, which will continue to affect the earnings visibility of the company. 

 As of to date, the group has secured RM137m in orders. However, there could be a slowdown in the commencement of the new projects secured and this may further lower the earnings of the group. 

Change to Forecasts   We have revised down our FY12E NP by 16% due to the lower sales across all its geographical segments.  However, we are maintaining our FY13E-FY14E  earnings estimates at RM10.5m and RM11.1m  respectively. 

Rating  MAINTAIN MARKET PERFORM

  

Valuation    We are maintaining our TP of RM0.53 based on an unchanged 8x Fwd PER on the FY13E EPS of 6.6 sen.

Risks   Fluctuation in foreign currencies.

 Cyclical sector.

 Delays in new projects.

Source: Kenanga