Bina Puri Holdings Bhd (May 27, 37 sen)

Maintain hold with a lowered target price (TP) of 42.5 sen: Excluding the share of loss from reclassification of holding in KL-Kuala Selangor Expressway Sdn Bhd from investment to associate, Bina Puri Holdings Bhd’s first financial quarter ended March 31, 2016 (1QFY16) core net profit of RM2.3 million came in below expectations, accounting for 17.5% of our full-year forecast. The variance was mainly due to slower-than-expected construction and property development progress and lower-than-expected property margin.

Year-on-year, 1QFY16 core net profit improved 13.3% despite a 13% drop in revenue to RM294.5 million. This improvement in bottom line mainly came from the power division in tandem with higher power sales (+177.3%). Quarter-on-quarter, the core net profit dropped 18.9% to RM2.3 million mainly due to lower contribution from the construction and property divisions. This was, however, offset by lower taxation.

Adjustments are made to reflect the challenging property outlook, ceasing of polyol business and slow order book replenishment as the group has yet to announce any construction job win in 2016. All in, we cut FY16 and FY17 earnings forecasts by 5.1% and 15.9% respectively but raise FY18 earnings estimate by 1%.

We estimate the outstanding orders have depleted to RM1.5 billion, at 1.4 times FY15 construction revenue. While the group has yet to secure new construction projects in 2016, we see more opportunities in the second half of FY16 with potential job wins from Pan Borneo Highway, Light Rail Transit Line 3, Mass Rapid Transit Line 2, Damansara–Shah Alam Elevated Highway, Sungai Besi-Ulu Kelang Expressway and Bus Rapid Transit in Kota Kinabalu. We have assumed RM800 million order book replenishment for FY16.

In view of the challenging property market, we cut the TP-earnings ratio (PER) multiple to seven times, from eight times previously. After factoring in the earnings revision, reduced target PER multiple, and rolling forward our valuation base year to FY17, we lower our TP from 47 sen to 42.5 sen. We maintain our “hold” call on Bina Puri. — TA Securities Research, May 27

Bina Puri

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This article first appeared in The Edge Financial Daily, on May 30, 2016. Subscribe to The Edge Financial Daily here.

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