Making Slow Progress. Although the 9MFY09 results only accounted 59% of our full year forecast for FY09, we view the results as inline with our expectation as we were expecting a strong 4QFY09 results coming from the contribution from its project in Sudan. However, with the project now expected to commence in 1QFY10 instead of 4QFY09 as previously anticipated, we have cut our earnings estimates for FY09 by 20% and maintain our FY10 forecast. We maintain our BUY recommendation with a lower TP of RM0.40 against RM0.46 previously following the downward revision in our FY09 forecast.
Largely inline YTD. Picorp recorded a net profit of RM10m for the 9MFY09, which we view largely inline within our expectation despite accounting for less than 60% of our full-year forecast for FY09 as we were expecting a strong 4QFY09 supported by the commencement of its project in Sudan. Revenue was up 12.2% y-o-y, which led to a 15.5% y-o-y increase in net profit. Given that its Malaysian operations turned in largely flat results, we believe the growth in revenue and earnings was largely driven by its Saudi Arabia operation, undertaken by its subsidiary, SAES. We gather that SAES’ current orderbook is around RM50m, which will last for the next 18 months.
Delay in Sudan. We gather that the commencement of Picorp’s sewerage concession project in Sudan has been delayed as it is still finalizing several legal matters related to the project. The project was initially expected to commence in 4Q09 but due to the delay, its commencement has been pushed to January 2010. We gather that the delay was largely attributed to the prolonged process in getting political risk insurance for the project. As such, we are not entirely disappointed with the delay as we believe it is important for Picorp to do so in order to minimize its risk exposure given the high political risk in that country.
Cutting our FY09 forecast. As we had anticipated the Sudan project to commence in 4Q09, the delay to January 2010 prompts us to cut our FY09 earnings forecast. We have revised downwards our FY09 forecast by 20% on stripping out the expected contribution from the Sudan project, which was initially anticipated to begin in 4QFY09. Meanwhile, we maintain our FY10 forecast as we do not expect further delays in the project in 2010.
Maintain BUY. We maintain our BUY recommendation with a lower TP of RM0.40 against RM0.46 previously following the downward revision in our FY09 forecast. Our new TP price is based on a SOP valuation comprising 10x PER on its FY09 EPS (ex-Sudan) and the DCF value of its concession in Sudan.
Source : OSK Research
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