Kelington Group - FY12 results within expectations

Period  FY12/4Q12

Actual vs. Expectations  The group’s FY12 earnings of RM6.0m came in within expectations, accounting for 96.7% and 95.2% of our and the consensus full-year estimates respectively.

Dividend  No dividend was announced during the quarter, which was below expectations.

Key Result Highlights  YoY, the group’s FY12 revenue decreased by 16.6% due to the decent growth in its Malaysia operation (+30.2%) thanks to the revenue contribution from its newly acquired subsidiary, Puritec Technologies (M) Sdn Bhd) although this was offset partially by the timing differences between completed projects and the delays in the commencement of its new projects, particularly in its Taiwan, China and Singaporean operations. Meanwhile, the net profit declined by 30.8% dragged down by the higher administrative expenses incurred (personnel costs and integration costs of its newly acquired subsidiary, Puritec Technologies (S) Pte Ltd in 1H12). This has also resulted in a fall in the PBT margin, which registered a 1.1ppts compression to 5.9%.

 QoQ, the 4QFY12 revenue soared by 48.3% thanks to the progressive recognition of the group’s ongoing projects based on the stage of completion milestones in the quarter. However, at the EBIT level, the EBIT only grew by 18.1% despite the decent growth at the top line. This was due to a lower EBIT margin on the back of a higher cost of sales.

Outlook  While we are sanguine on the group’s outstanding order book of RM51.6m (as of to date), which is deemed to be relatively decent, we maintain our cautious stance as we believe that the current economic uncertainties could weigh on the earnings momentum of the group.

Change to Forecasts  We have trimmed our FY13 net profit forecast by 1% to RM10.3m after fine-tuning our numbers. We have also introduced our FY14 earnings estimates.

Rating   Maintain MARKET PERFORM

Valuation  We are maintaining our TP of RM0.53, which implies a 9.0x FY13 PER (close to a-0.5SD level below its historical 3-year mean).

Risks  Fluctuation in foreign currencies.

 Cyclical sector.

 Delays in new projects.

Source: Kenanga