Asia Analytica trims Ireka FY13 net profit forecast by 57%

KUALA LUMPUR (Dec 13): Asia Analytica has trimmed their net profit forecast for Ireka Corporation Bhd (Ireka) by 57% from RM4.9 million to RM2.1 million for FY13 after the company reported losses in the second quarter for financial year ending March 2013 (2QFYMar13).

According to Asia Analytica, Ireka's latest earnings results for 2QFYMar13 were below expectations due to unexpected construction cost overruns at its Sandakan Harbour project, and high opening and operating costs associated with the mall and hotel there.

"We are keeping our forecast unchanged for FY14, where we expect net profit to rebound to RM9.1 million in FY14, or 8 sen per share with a corresponding price/earnings ratio multiple of 8.9 times," Asia Analytica said in a report today (Thursday).

Ireka registered a 2QFYMar13 pre-tax and net loss of RM2.5 million and RM2.7 million, respectively, compared to a year ago: RM1.6 million and RM1.1 million respectively.

Cumulative revenue for the six-month period was flat at RM206.9 million while net loss totaled RM1.6 million.

Ireka also suffered from several one-off items during the quarter that affected its profitability which includes a RM1.2 million in mark-to-market impairment losses for its investment in Vietnam-listed Kinh Bac City Development Shareholding Corp and RM0.4 million in payment for liquidated and ascertained damages for the late delivery of a project.

Looking forward, Asia Analytica believes that Ireka's earnings will continue to be volatile due to its high dependence on 23%-owned Aseana Properties Ltd (ASPL) which is affected by property slowdowns in Vietnam and Malaysia.

"The lack of project completion and high operating costs associated with the Sandakan Harbour Mall and hotel complex are likely to dampen the bottom-line for ASPL in the coming year or two," Asia Analytica stated in their report.

"The adoption of the International Financial Reporting Interpretations (IFRIC) 15, which recognizes profits on completion of a project, at both ASPL and Ireka, will also result in lumpy profit recognition going forward," the research house added.

Asia Analytica said that while earnings are unexciting, downside risks are also low as the stock is trading well below its book value of RM1.96. Additionally, the stock offers high dividends, with a fairly consistent 5 sen annual payout that translates to a high yield of 7%.