Pesona’s earnings are expected to be resilient in the foreseeable future

TheEdge Mon, Feb 10, 2020 09:44am - 4 years View Original


Pesona Metro Holdings Bhd
(Feb 7, 20.5 sen)
Reiterate buy with a lower target price of 29 sen:
We remain positive about Pesona Metro Holdings Bhd as earnings are expected to be resilient in the foreseeable future as it is backed by a sizable outstanding order book of RM1.7 billion. Furthermore, the group is supported by a stable recurring income from its student hostel concession.

 
Backed by strong job wins of about RM919.9 million and RM647.3 million for financial year 2018 (FY18) which ended on Dec 31 and FY19 respectively, Pesona carries an outstanding order book of approximately RM1.7 billion as of end-September 2019. This translates into 3.1 times (FY18) construction revenue and could provide earnings visibility for the group until the second half of 2021.  

Pesona has completed three construction projects in 2019, namely genKL condominium at Kuchai Lama, Central Plaza at i-City and Tzu Chi International School.

For the current year, Pesona is eyeing to replenish new projects worth RM500 million. In our earnings model, we have assumed annual order book replenishment of RM400 million for 2020 and 2021.

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 2017 and 2018 due escalation of steel bar price.  

With the softening of steel bar price since the beginning of 2018, coupled with the depletion of legacy projects, which carry lower budgeted costs for steel bars, we observe the recovery of construction margin in the most recent two quarters.

Despite the recent hike in cement price, we expect construction operating margin to be sustained at mid-single digits as the current steel bar price is still lower than the average steel bar price in 2018 and 2019, during which sizeable new projects were secured.

We cut our FY20 and FY21 earnings forecasts by 6% and 8.4% respectively after reflecting the actual FY19 construction job wins of RM647.3 million versus our previous assumption of RM800 million. — TA Securities, Feb 7

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