2QFY21 CNP of RM8.7m lifted 1HFY21 CNP to RM12.5m, accounting for 36% of market expectation. Despite so, we deem the results inline as we expect the upcoming quarters to pick up from further normalization of activities post MCO. An interim 1.0 sen dividend was declared, within our 1.6 sen full-year estimate. With unchanged estimates, maintain our UNDERPERFORM rating and TP of RM0.51.

Within expectations. 2QFY21 (May – July 21) CNP of RM8.7m lifted 1HFY21 CNP to RM12.5m, accounting for 36% of market expectation. Despite so, we deem the results inline as we expect upcoming quarters to be stronger from full quarter impact from resumption of its construction activities. Note that its construction activities only resumed in the middle of 2QFY21 i.e. early June 2020. The declared 1.0 sen interim dividend is within our 1.6 sen full-year estimate.

Highlights. 2QFY21 CNP of RM8.7m was up 135% QoQ on the back of 78% growth in revenue as the impact of MCO was not as severe compared to 1QFY21. For illustration, GKENT’s metering business fully resumed operations on 4th May 2020 which means there were no disruptions in 2QFY21 while its construction division restarted works early June (1 month of disruption in 2QFY21 vs 1.5-month disruption in 1QFY21). Meanwhile, 1HFY21 CNP of RM12.5m was down 49% YoY no thanks to the MCO lockdowns.

Current construction order-book stands at RM4.5b (>90% derived from LRT3 at RM4.2b) providing visibility for the next 4 years. Note that we have factored in zero replenishment for FY21- 22 as they have yet to secure any new construction projects since Dec 2016. That said, we note that management is keen to bid for projects within the water treatment plant, hospital and rail-related space.

No change to earnings. Post results, we leave our estimates unchanged.

Maintain UNDERPERFORM and TP of RM0.51 (based on PBV of 0.55x or -1SD from mean). Our rating is premised on the fact that the group’s revenue and profit have been declining due to its depleting order-book which is further weighed down by bleak prospect in replenishing its construction order-book.

Risks for our call are: (i) higher-than-expected margins, and (ii) higher-than-expected contract replenishments.

Source: Kenanga Research - 15 Sept 2020