Pesona Metro Holdings Bhd
(July 3, 23 sen)
Maintain buy with a higher target price (TP) of 35 sen: Despite lacklustre sentiments after the 14th general election, Pesona Metro Holdings Bhd bucked the trend by securing sizeable new jobs worth about RM920 million in the past 12 months, bringing its outstanding order book to RM2 billion as of end-March 2019. Year to date, it has secured RM647 million of new orders.

The strong outstanding order book should keep the group busy until 2021.

With a comfortable outstanding order book we expect Pesona Metro to be more selective in procuring new jobs.

As such, we maintained our financial year 2019 (FY19) order book replenishment assumption of RM800 million.

Besides higher depreciation charges arising from heavy investments in plant and machinery in 2016 (RM16.3 million) and 2017 (RM24.9 million), the construction margin was broadly under pressure in the past two years due to an escalating steel bar price.

This was against lumpy contract wins of about RM1.8 billion in 2016, during which new contracts were secured when the steel bar price was low, averaging about RM1,933 per tonne in that year.

With a softening steel bar price since the beginning of 2018, coupled with depleting legacy projects, carrying lower budgeted costs for steel bars, we expect gross construction margin to gradually recover back to the 10% target.

In view of the declining steel bar price, we revised upwards our margin assumptions for various construction projects and raised FY19 and FY21 earnings forecasts by 14.6% and 31% respectively. — TA Securities, July 3