1HFY22 CNP of RM16m came broadly within our full-year estimate as we anticipate a strong rebound in all its divisions in 2HFY22. 17.0 sens dividend declared is within our 21.0 sen estimate. 1HFY22’s property sales of RM1.1b and YTD construction replenishment of RM1.3b are above expectations while Kuantan Port’s cargo throughput of 11.2m tonnes is below. In tandem with these deviations, FY22E CNP is reduced by 4% while FY23E CNP is raised by 2%. Reiterate OP with a lower SoP-TP of RM1.90 (from RM2) on lower valuation for Kuantan Port in tandem with the reduced port’s earnings.

Broadly within our expectation but below consensus. 2QFY22 core net loss (CNL) of RM35m led 1HFY22 CNP to RM16m - broadly within our full-year estimate of RM193m but below consensus’s overly optimistic projection of RM335m. We deem this broadly within our expectation as we anticipate all their key segments (construction, property, manufacturing and infra) which were dragged down during the pandemic to rebound strongly in 2HFY22 amidst normalised operating capacities.

Dividends as expected. A cumulative 17.0 sen dividend declared (15.0 sen special dividend from IJMP disposal + 2.0 sen interim dividend) came within our full-year dividend expectations of 21.0 sen.

Highlights. 2QFY22 CNL of RM35m slipped into the red QoQ mainly due to: (i) longer FMCO lockdown restrictions period of 1.5 months’ vs. 1 month in 1QFY22 which caused revenue at all key segments to decline (with the exception of manufacturing), and (ii) the absence of IJMP from its consolidated operations as disposal was completed on 6 Sep 2021.YoY, 1HFY22 CNP of RM16m was down 73% mainly dragged down by weaker PBT contributions from: (i) construction (-41%) due to weaker margins and lower revenue progress due to restrictions and lower outstanding book brought over (RM4.0b at start of FY22 vs. RM4.5b at start of FY21), (ii) property (-60%) from weaker margin mix projects, and (iii) Infra (-94%) from lower port throughputs of 11.2m tonnes (-19% from 13.9m tonnes).

Property sales above expectation. 2QFY22 property sales of RM0.4b led 1HFY22 property sales to RM1.1b – above our RM1.4b (at 79%) target but within management’s RM1.7b target. On the back of encouraging demand for its landed properties, management has increased their FY22 launch pipeline from RM1.6b to RM2.1b (YTD as of end-Nov, it has launched RM1.42b worth of properties). Hence, we raise our FY22E sales target to RM1.8b. 3QFY21 unbilled sales stood at RM1.4b.

YTD construction replenishment of RM1.3b is considered below our RM1.4b target as management revealed that there are a couple of contracts from the government as well as CCCC which are near finalisation of awards. Consequently, we raise our replenishment target to RM2.0b which is in line with management’s target. Outstanding order-book stood at RM4.5b providing c.2.5x cover.

Meanwhile, Kuantan Port’s 2QFY22 cargo throughput of 5.3m tonnes led 1HFY22 to 11.2m – below our 30m tonnes target as we believe throughputs from Alliance Steel (biggest contributor) may see slightly dampened volumes in lieu of the weaker steel prices in China. Consequently, we cut our FY22E throughput assumption to 24m tonnes.

Earnings revision. After adjusting for (i) higher construction replenishment, (ii) higher property sales and (iii) lower cargo throughput, FY22E CNP is reduced by 4% while FY23E CNP is upped by 2%. Maintain OP on lower SoP-TP of RM1.90 (RM2.00 prior) from a lower Kuantan Port valuation in tandem with the reduced earnings from lower throughput.

Key downside risks for our call are: (i) lower-than-expected margins, and (ii) slower-than-expected progress in construction works and clearing of property inventories.

Source: Kenanga Research - 30 Nov 2021