PEC Ltd’s 2Q12 revenue increased by 18% YoY to S$130m, but net profit fell by 70% YoY to S$3m, mainly on lower gross margins (2Q12: 20%; 2Q11: 26%) and unexpected losses from its associates and JVs (2Q12: S$5.9m losses; 2Q11: S$0.3m profit). The loss from JV was mainly due to delay in project completion and unclaimed costs incurred on variation works. With the problematic Rotterdam JV nearing its completion in Mar 12, we think that PEC should be on track for a better performance in FY13F. We updated our projections with respect to 2Q12 results, and expect the group to recover ~S$12m from its claims on variation works over 2H12F-FY13F. This in turn raised our fair value estimate slightly to S$0.93 (on 1x FY13F PBR) from S$0.92 previously. Maintain BUY.
2Q12 results below expectations. PEC Ltd’s 2Q12 revenue increased by 18% YoY to S$130m, but net profit fell by 70% YoY to S$3m, mainly on lower gross margins (2Q12: 20%; 2Q11: 26%) and unexpected losses from its associates and JVs (2Q12: S$5.9m losses; 2Q11: S$0.3m profit). On a quarterly basis, net profit increased 24%, led by a 19% increase in revenue and improvements in gross margins (2Q12: 20%; 1Q12: 18%). 1H12 net profit was S$5.6m (1H11: S$19m; -71%) and formed about 40% of our full-year estimates.
S$5.8m of losses from Rotterdam JV. The 2Q12 loss from JV was mainly due to delay in project completion and unclaimed costs incurred on variation works. Note that this is the second major disappointment on the Rotterdam JV project. The first was in 4Q11 (quarter ended June 11) when it incurred S$5.6m of losses, also for unconfirmed claims arising from variation works. PEC believes that the client’s financial health is stable and is hopeful of resolving the unsettled costs after the project completion in March 12.
Share buyback mandate should limit downside risks. Meanwhile, PEC shareholders has approved the proposed share purchase mandate resolution, authorizing the management to purchase up to 10% of the total number of shares (excluding treasury shares). We think that this would limit downside risks to PEC’s share price, which is currently trading at book value of S$0.79 (net cash per share = S$0.57) as of end-Dec 11.
Maintain BUY with higher fair value estimate of S$0.93. With the problematic Rotterdam JV nearing completion, the group should be on track for a better FY13F performance. We updated our projections with respect to 2Q12 results, and expect the group to recover ~S$12m from its claims on variation works over 2H12F-FY13F. This in turn raised our fair value estimate slightly to S$0.93 (on 1x FY13F PBR) from S$0.92 previously. Maintain BUY.
S$5.8m of losses from Rotterdam JV. The 2Q12 loss from JV was mainly due to delay in project completion and unclaimed costs incurred on variation works. Note that this is the second major disappointment on the Rotterdam JV project. The first was in 4Q11 (quarter ended June 11) when it incurred S$5.6m of losses, also for unconfirmed claims arising from variation works. PEC believes that the client’s financial health is stable and is hopeful of resolving the unsettled costs after the project completion in March 12.
Share buyback mandate should limit downside risks. Meanwhile, PEC shareholders has approved the proposed share purchase mandate resolution, authorizing the management to purchase up to 10% of the total number of shares (excluding treasury shares). We think that this would limit downside risks to PEC’s share price, which is currently trading at book value of S$0.79 (net cash per share = S$0.57) as of end-Dec 11.
Maintain BUY with higher fair value estimate of S$0.93. With the problematic Rotterdam JV nearing completion, the group should be on track for a better FY13F performance. We updated our projections with respect to 2Q12 results, and expect the group to recover ~S$12m from its claims on variation works over 2H12F-FY13F. This in turn raised our fair value estimate slightly to S$0.93 (on 1x FY13F PBR) from S$0.92 previously. Maintain BUY.
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