The seasonally weak 1HFY22 core profit of RM23.9m is on track to meet our forecast while key projects are advancing to tail-end stage which fetches higher margin, boosting 2HFY22 earnings higher. In all, we continue to like the stock as a niche utility infrastructure play. Keeping OP at TP of RM1.11.

1HFY22 in line. At 32% of our FY22 estimate, we deem the 1HFY22 core profit of RM23.9m as within expectation on seasonality factor as 1H of the financial year is always a weak period especially for Cambodia projects with the monsoon season affecting work progress there. No dividend was declared during the quarter as expected.

2QFY22 results fell sequentially. With revenue falling 12% to RM182.5m, 2QFY22 core profit dipped slightly by 3% QoQ to RM11.8m, owing to lower job progress billings. However, the decline in earnings was mitigated by a tax credit of RM1.4m against a taxation of RM3.0m arising from reversal of provisional tax while MI also contracted by 23%. During the quarter, key projects, JB-Gemas Double Track only completed 4% of work progress, KVDT at 1%, MRT2 at 1%, Tatay at <1% and ODMPL at 5%, contributed to the decline in revenue recognition.

Seasonally slow period. YoY, 2QFY22 core profit contracted 26% from RM15.9m due to slower job claim billings as compared to last year when ODMPL completed 10% last year vs. 5% in current quarter. YTD, 1HFY21 core profit declined 28% to RM23.9m from RM33.3m as revenue fell 9% to RM390.3m from RM427.4m, for the similar reason with slower job claims.

Looking forward to a better FY22. After the seasonally weak 1HFY22, key projects namely ODM and Tatay projects in Cambodia, and MRT2 locally advancing to higher stages should boost 2HFY22 earnings higher. On the other hand, as ODM project is on-going till Sep 2022, MI will continue to stay higher on construction profit from this concession project till 1QFY23. Meanwhile, with the RM743.0m KLIA aerotrain project secured last Dec, its orderbook has increased to RM2.00b as at Dec 2021 from RM1.58b three months ago. In all, we keep our FY22E/FY23E estimates unchanged and we do not expect any dividend payments in these two years.

Maintain OUTPERFORM. We continue to like this niche utility infrastructure play for its ability to secure contracts both locally and abroad with the booming energy infrastructure development and rail electrification prospects in ASEAN. Hence, we maintain our OUTPERFORM rating on the stock with unchanged target price of RM1.11 which is based on 3-year moving mean of 14x FY22 PER.

Risks to our call include: (i) failure to replenish order-book, and (ii) cost overruns.

Source: Kenanga Research - 25 Feb 2022