Period 4Q12
/12M12
Actual vs. Expectations The 4Q12 profit before tax (PBT) of RM8.5m
brought CY12 PBT to RM69.0m. This was below our expectations, making up only
84% of our FY12 PBT estimate of RM82.4m. However, it came in within the
consensus estimate of RM71.6m (making up 96%).
We are reviewing KNM’s results on a PBT basis
to exclude the impact of its tax credit. FY12 is the last year that KNM is
expected to report a positive tax credit.
The variance to our earnings estimate came
from the: 1) lower-than-expected operating margins for FY12; and 2) higher-than-expected
borrowing costs.
Dividends No
dividend was declared and this was below our FY13 NDPS expectation of 0.25sen.
Key Results Highlights QoQ, the 4Q12 PBT was down 58.2% largely due
to: 1) lower EBITDA margins earned at the Asia & Oceania division (4.6%
from 12.2% previously); and 2) a higher interest cost (RM20.5m versus RM13.1m
in 3QFY12), which we understand was due to a bridging loan taken out for KNM’s
previous rights issue. Management guided that the bridging loan had since been
repaid. Hence, the interest cost is expected to normalise ahead.
YoY, the 4Q12 PBT was up (>100%), mainly
due to turnaround in its operational. Recall that in 2011, it was hit by
low-margin contracts and an excessive operating capacity that led to a loss of
RM155.9m.
Outlook FY13
earnings are also expected to be in the black due to: 1) the legacy loss-making
projects having been completed in 2012; 2) reduced costs as various efforts have
been undertaken to improve cost efficiencies and productivities.
Some plant capacity rationalisations are
expected as certain plants (e.g. Brazil/Indonesia/Australia) seem to be suffering
from low utilisations.
The Peterborough and Octagon projects are
currently at status quo. This is one of the key risks for the company given
that the Peterborough project accounts for around 50% of the outstanding order
book (est. c.RM4.3b).
Change to Forecasts We are maintaining our earnings estimates as
we expect a normalised interest cost moving ahead. However, we are removing our
NDPS estimates pending further guidance from the management in regard to the company’s
forward NDPS forecasts.
Rating Maintain
MARKET PERFORM
Valuation Based
on an unchanged targeted PER of 9.0x on the CY13 EPS of 5.9 sen, we are
maintaining our fair value of RM0.53. The discount to the sector’s average PER
of 15.0x is due to the significant earnings risk present given KNM’s historical
high bottom line volatility.
While our target price implies an upside of
>10%, we are keeping our MARKET PERFORM call given the uncertainty in regard
to KNM’s ability to realise its order book.
Risks 1)
Inability to secure more contracts going ahead; and 2) The continued delay of
its headline projects like Peterborough and Octagon.
Source: Kenanga
No comments:
Post a Comment