Enra Group Bhd
(Aug 15, RM1.37)
Maintain hold with a lower fair value of RM1.28: Following an earnings revision, we cut our financial year 2020 (FY20) to FY22 net profit forecasts by 46%, 29% and 34% respectively after factoring in lower revenue and margins for Enra Group Bhd’s energy services division.

Enra’s first quarter ended June 30, 2019 core net profit of RM500,000 (-78.6% year-on-year [y-o-y]) came in below our expectations, making up only 15% of our full-year forecast. Revenue fell by 23% y-o-y due to lower revenue for the energy services division. However, this was partly offset by an additional contribution of RM19 million from the property development division.

The energy services division posted a lower profit before tax of RM3.6 million (-56.3% y-o-y) mainly due to lower revenue from the chemical trading business. However, it was partly offset by an additional revenue of RM5.7 million from the contract with PC Myanmar (Hong Kong) Ltd as well as maiden contributions from Enra IOL Sdn Bhd and International Chemicals Engineering Pty Ltd.

The property development division recorded a revenue of RM19 million from the sale of Flat 1 of the Portland Chambers in Central London and the sale of a unit in Shamelin Star, Kuala Lumpur. The division posted a loss of RM16,000 due to post-construction expenses of the UK project.

Meanwhile, the management plans to cut its investment holding cost by 15% to 20% beginning FY20, which will enable it to mitigate the higher finance expenses.

Enra is planning to undertake a lifestyle retirement home development in Caldecott Square, Rugby, the UK via a 51% joint venture (JV). The proposed development comprises 71 units of extra care residences incorporating a central facility and two visitor suites. These will be built on three pieces of adjoining freehold land measuring 1.8 acres (0.73ha) which the JV company has acquired for £3.8 million (RM20.4 million) recently. The project has a gross development value of £30.1 million and is expected to commence in the third quarter of 2019 (3Q19) with an estimated development period of 36 months. Revenue and earnings can only be recognised upon completion.

Enra’s forward earnings will be driven largely by: i) its US$48 million (RM210 million) four-year contract (beginning April 2018) for the provision of condensate storing and offloading services to the Yetagun offshore gas field off the coast of Myanmar; ii) sales from its remaining six units in Shamelin Star and its one-off property project in London; and iii) the retirement home development in Caldecott Square. — AmInvestment Bank, Aug 21