Vivocom’s 9MFY16 earnings slightly below expectations
KUCHING: Vivocom International Holdings Bhd’s (Vivocom) first nine months of financial year 2016 (9MFY16) earnings came in slightly below analysts’ expectations, which led trimmed estimates towards a more defensive stance.
According to its filing on Bursa Malaysia, Vivocom’s profit after tax to date ended September 30, 2016 amounted to RM64.62 million, compared with the preceding year’s corresponding period of RM6.21 million.
Vivocom’s 9MFY16 earnings of RM53 million came slightly below the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) estimates as well as consensus estimates.
To note, the group’s net profit accounted for 65.4 per cent and 67 per cent of MIDF Research’s and consensus’ full-year forecasts respectively.
“The slight deviation was due to higher mobilisation cost from expanding orderbook,” it said.
According to MIDF Research, the earnings was on the back of construction revenue of RM253 million which resulted from the transfer of Vivocom’s construction orderbook of RM3.5 billion to the group’s bottom line trickled by a stable net margin of 16.6 per cent.
The research arm noted that Neata Aluminium continues to grow its margin from RM5.6 million in 9MFY15 to RM28.5 million in current period.
On another point, the research arm said that the surge in orderbook could also signify growing cost evidential from Vivocom’s cost of sales of RM226.6 million, which was up 776 per cent year on year (y-o-y).
Having said that, MIDF Research trimmed its revenue and earnings estimates for FYE16/FYE17 by 10 per cent to reflect defensive stance from bearish market sentiments and recognition of costs to Vivocom’s construction backlog in upcoming quarters.
The research arm reckoned that Vivocom will experience an increase of 15 per cent in the group’s cost of sales in FYE16/FYE17 due to a potential surge in its orderbook in the form of mobilisation, tender cost and performance bond.
“To balance our view, its peers in KLCon Index have also shown some degree of increase in cost of sales from the three factors mentioned,” the research arm said.
MIDF Research has thus reaffirmmed its ‘buy’ recommendation with an adjusted target price of RM0.40 per share based on discounted cash flow (DCF) with weighted average cost of capital of 7.4 per cent and share split.