iris corporation berhad_rimbunan kaseh to come in next quarter_120827

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TA Securities A Member of the TA Group RESULTS UPDATE Monday, 27 August, 2012 FBMKLCI: 1,648.22 MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048 Sector: Manufacturingl Page 1 of 2 IRIS Corporation Berhad TP: RM0.31(+77.1%) Rimbunan Kaseh to come in next quarter Last traded: RM0.175 THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* BUY Tan Kam Meng, CFA +603-2072-1277 ext:1614 [email protected] www.taonline.com.my Review 1Q13 net profit of RM8.3mn accounted for 18.3% of our full-year forecast. However, we consider this within our expectation as we have assumed contributions from two key projects, i.e.: Rimbunan Kaseh and the waste-to-energy incineration plant in Phuket, to begin from 2Q13 onwards. 1Q13 net profit surged 42% largely due to lower effective tax rate as compared with the same period of last year. At the pre-tax level, earnings dropped 14% despite a 7.5% growth in revenue due to increased contribution from low-margin contracts. Sequentially, 1Q13 revenue surged 32.5% and this has filtered down to bottom line with a 32.8% increase in net profit. For this quarter, the group derived significant revenue from existing projects namely, Malaysian e-Passport Inlays and Tanzania e-ID cards, and new project, i.e.: the implementation of Malaysian e-Passport ICAO compliance project. Impact No change to our FY13-15 earnings projections. Outlook Iris procured a Rimbunan Kaseh project from Pahang State Government worth RM23mn in end-June/12. Given the short construction duration of 60 days, we expect the project to contribute RM6.4mn profit before tax in 2Q-3Q, assuming a margin of 28%. This represents 61% of PBT achieved in 1Q13. Note that Iris’ 51%-owned PJT technology has completed the construction of a waste-to-energy incineration plant in Phuket, which is expected to commence operations soon. Based on an average offtake rate of THB6.42/kWh, the plant could potentially generate approximately RM42mn in revenue per annum. We believe Iris’ involvement in the ticketing solution system for Kelana Jaya Line and Ampang Line would provide the company an opportunity to secure the MRT ticketing solution system, when the tender is called. Valuation We maintain our target price at RM0.31/share, based on unchanged 10x CY13 earnings. Maintain BUY. Share Information Bloomberg Code ICB MK Stock Code 0010 Listing ACE Market Share Cap (mn) 1575.0 Market Cap (RMmn) 275.6 Par Value 0.15 52-wk Hi/Lo (RM) 0.205/0.13 12-mth Avg Daily Vol ('000 shrs) 6147.0 Estimated Free Float (%) 83.6 Beta 0.93 Major Shareholders (%) Perbadanan Nasional Bhd - 8.4 Versatile Paper Boxes S/B - 8.03 Forecast Revision FY13 FY14 Forecast Revision (%) - - Net profit (RMm) 45.6 48.9 Consensus - - TA's / Consensus (%) - - Previous Rating Financial Indicators FY13 FY14 Net Debt/Equity (%) 23.5 13.8 CFPS (sen) (1.1) 2.8 Price/CFPS (x) na 5.8 ROE (%) 10.5 10.3 NTA/Share (RM) 0.2 0.2 Price/NTA (x) 0.9 0.8 % of FY vs TA 18.3 Within vs Consensus - Share Performance (%) Price Change IRIS FBM KLCI 1 mth 9.4 1.4 3 mth 6.1 6.3 6 mth (2.8) 5.7 12 mth 25.0 14.1 Buy (Maintained) SCORECARD (12-Mth) Share Price relative to the FBM KLCI Source: Bloomberg

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Page 1: IRIS Corporation Berhad_Rimbunan Kaseh to Come in Next Quarter_120827

TA SecuritiesA Member of the TA Group

R E S U L T S U P D A T E

Monday, 27 August, 2012

FBMKLCI: 1,648.22 MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048 Sector: Manufacturingl

Page 1 of 2

IRIS Corporation Berhad

TP: RM0.31(+77.1%) Rimbunan Kaseh to come in next quarter Last traded: RM0.175

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* BUY

Tan Kam Meng, CFA

+603-2072-1277 ext:1614

[email protected] www.taonline.com.my

Review

� 1Q13 net profit of RM8.3mn accounted for 18.3% of our full-year

forecast. However, we consider this within our expectation as we have

assumed contributions from two key projects, i.e.: Rimbunan Kaseh and

the waste-to-energy incineration plant in Phuket, to begin from 2Q13

onwards.

� 1Q13 net profit surged 42% largely due to lower effective tax rate as

compared with the same period of last year. At the pre-tax level,

earnings dropped 14% despite a 7.5% growth in revenue due to

increased contribution from low-margin contracts.

� Sequentially, 1Q13 revenue surged 32.5% and this has filtered down to

bottom line with a 32.8% increase in net profit. For this quarter, the

group derived significant revenue from existing projects namely,

Malaysian e-Passport Inlays and Tanzania e-ID cards, and new project,

i.e.: the implementation of Malaysian e-Passport ICAO compliance

project.

Impact

� No change to our FY13-15 earnings projections.

Outlook

� Iris procured a Rimbunan Kaseh project from Pahang State Government

worth RM23mn in end-June/12. Given the short construction duration

of 60 days, we expect the project to contribute RM6.4mn profit before

tax in 2Q-3Q, assuming a margin of 28%. This represents 61% of PBT

achieved in 1Q13.

� Note that Iris’ 51%-owned PJT technology has completed the

construction of a waste-to-energy incineration plant in Phuket, which is

expected to commence operations soon. Based on an average offtake

rate of THB6.42/kWh, the plant could potentially generate

approximately RM42mn in revenue per annum.

� We believe Iris’ involvement in the ticketing solution system for Kelana

Jaya Line and Ampang Line would provide the company an opportunity

to secure the MRT ticketing solution system, when the tender is called.

Valuation

� We maintain our target price at RM0.31/share, based on unchanged 10x

CY13 earnings. Maintain BUY.

Share Information

Bloomberg Code ICB MK

Stock Code 0010

Listing ACE Market

Share Cap (mn) 1575.0

Market Cap (RMmn) 275.6

Par Value 0.15

52-wk Hi/Lo (RM) 0.205/0.13

12-mth Avg Daily Vol ('000 shrs) 6147.0

Estimated Free Float (%) 83.6

Beta 0.93

Major Shareholders (%)

Perbadanan Nasional Bhd - 8.4

Versatile Paper Boxes S/B - 8.03

Forecast Revision

FY13 FY14

Forecast Revision (%) - -

Net profit (RMm) 45.6 48.9

Consensus - -

TA's / Consensus (%) - -

Previous Rating

Financial Indicators

FY13 FY14

Net Debt/Equity (%) 23.5 13.8

CFPS (sen) (1.1) 2.8

Price/CFPS (x) na 5.8

ROE (%) 10.5 10.3

NTA/Share (RM) 0.2 0.2

Price/NTA (x) 0.9 0.8

% of FY

vs TA 18.3 Within

vs Consensus -

Share Performance (%)

Price Change IRIS FBM KLCI

1 mth 9.4 1.4

3 mth 6.1 6.3

6 mth (2.8) 5.7

12 mth 25.0 14.1

Buy (Maintained)

SCORECARD

(12-Mth) Share Price relative to the FBM KLCI

Source: Bloomberg

Page 2: IRIS Corporation Berhad_Rimbunan Kaseh to Come in Next Quarter_120827

TA SecuritiesA Member of the TA Group 27-Aug-12

Page 2 of 2

Earnings Summary (RM’mn)

FYE March 31 (RMmn) FY10# FY12* FY13F FY14F FY15F

Revenue 366.1 509.0 534.8 552.3 578.7

EBITDA 71.5 95.5 99.1 103.5 103.8

EBITDA margin (%) 19.5 18.8 18.5 18.7 17.9

Pretax profit 41.6 66.3 70.2 75.3 75.8

Net profit 27.3 45.2 45.6 48.9 49.3

Core net profit 27.3 45.2 45.6 48.9 49.3

EPS (sen) 1.7 2.9 2.9 3.1 3.1

Diluted EPS (sen) 1.7 2.5 2.5 2.7 2.7

EPS growth (%) 75.1 42.2 1.0 7.2 0.6

PER (x) 10.1 7.1 7.0 6.6 6.5

GDPS (sen) 0.5 0.5 0.5 0.5 0.5

Div yield (%) 2.6 2.6 2.9 2.9 2.9

Core ROE (%) 7.9 11.4 10.5 10.3 9.5

* comprising 15-month earnings from Jan-11 to March-12

# ended December 2QFY12 Results Analysis (RMmn) YE Mar 2Q12* 5O12* 1Q13 QoQ (%) YoY (%)

Revenue 95.3 77.3 102.5 32.5 7.5

EBITDA 16.5 10.0 14.3 42.4 (13.2)

Depr & Amor. (1.2) (1.2) (1.2) (3.2) 4.9

Interest Expenses (2.8) (2.6) (2.5) (3.2) (10.0)

Associate (0.4) (0.8) (0.1) (82.9) (64.7)

Pre-tax Profit 12.1 5.4 10.4 93.0 (14.0)

Tax Expenses (6.3) (0.3) (3.2) >100 (49.9)

MI 0.0 1.1 1.0 (8.5) nm

Net Profit 5.8 6.3 8.3 32.8 42.5

EPS (sen) 0.41 0.42 0.5 26.2 29.3

DPS (sen) 0 0.45 0.0 nm nm

EBITDA Margin (%) 17.3 13.0 13.9 1.0 (3.3)

Pre-tax Margin (%) 12.7 7.0 10.2 3.2 (2.6)

Net-Margin (%) 6.1 8.1 8.1 0.0 2.0

Effective tax rate (%) 51.8 5.2 30.2 25.0 (21.6)

* Change of financial year to March from December

Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any

direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

This report has been prepared by TA SECURITIES HOLDINGS BERHAD for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and will be compensated to undertake the scheme. TA SECURITIES HOLDINGS BERHAD has produced this report independent of any influence from the CBRS or the subject

company. For more information about CBRS and other research reports, please visit Bursa Malaysia’s website at:

http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/eResearch.jsp

for TA SECURITIES HOLDINGS BERHAD(14948-M)

(A Participating Organisation of Bursa Malaysia Securities Berhad)

Kaladher Govindan – Head of Research