• 3Q15 was above expectation due to stronger-than-expected earnings from the precast concrete business.
• Expect its strong orderbook replenishment to persist in 2016.
• Raise 2015-17 net profit estimates by 2-6%. Reiterate BUY at a higher TP of MYR1.50 (+7%).

What’s New

3Q15 net profit of MYR26m (-32% QoQ) brought 9M15 net profit to MYR98m, making up 82% of our full-year forecast. The strongerthan- expected 3Q15 results was due to strong earnings from its Singapore precast concrete business that contributed 73% of group EBIT, which has also resulted in a lower tax rate at the group level. These offset lower-than-expected contributions from construction. QoQ, the weaker 3Q15 group profit was due to construction EBIT which fell 72% QoQ due to lower construction works recognition (- 6% QoQ) and weaker EBIT margins (-3.4ppt QoQ), due to variation cost incurred in 3Q15 and some of its major projects were at final completion stage. However, this was partly offset by the stronger precast concrete EBIT (+45% QoQ) mainly due to improvement in EBIT margins by 13.5ppt QoQ while revenue declined 20% YoY. The higher precast concrete margin was due to the weaker MYR against SGD and finalization of accounts.

What’s Our View

SCG’s earnings from both construction and precast concrete divisions can be volatile due to lumpy recognition and variation orders. We expect construction EBIT to pick up strongly in 4Q15 driven by its solid outstanding construction orderbook of MYR4.3b. With SCG’s robust job wins YTD of MYR2.6b, we expect its orderbook replenishment momentum to continue in 2016. We raise our 2015/16/17 net profit forecasts by 2%/4.4%/5.6% after imputing its latest MYR107m job win. Thereafter, we lift our TP to MYR1.50 (from MYR1.40) after we roll forward our valuation basis to 2017 EPS based on unchanged 13x PER. Reiterate BUY.

Source: Maybank Research - 25 Nov 2015