IEV Holdings

UOBKayhian on 14 Aug 2012

Results
· Profits disappoint. IEV Holding’s (IEV) 1H12 net profit grew 66.9% yoy to RM11.3m. However, this only amounted to 22% of our full-year forecast. Net profit was below expectations as: a) only 38% of the D21 rig reuse project, which contributed two-thirds of revenue, was recognised in 1H12, and b) gross margin of 15.5% was significantly below our forecast of 20.5%.
· Revenue up 225.8%. Revenue soared 225.8% yoy to RM147.6m in 1H12, driven by the offshore engineering segment, which undertook two turnkey platform decommissioning projects (RM20m) and the D21 rig reuse project (RM250m) during the period.
· 0.66 sen dividend. IEV declared an interim dividend of 0.66 sen/share (0.264 S cents). We forecast 2012 dividend yield of 1.6% based on an expected pay-out ratio of 10%.

Stock Impact
· Earnings back-end loaded. We expect a stronger performance in 2H12 as the remaining 62% of the D21 rig reuse project will be recognised, contributing more than two-thirds of our revenue forecast.
· Orders may disappoint. Year to date, IEV has not won any significant turnkey projects (2011: RM280m). As a result, we believe there may be an earnings vacuum in 2013 after the completion of the D21 rig reuse project. We reduce our FY12 contract win forecast from RM300m to RM150m.
· Upside risk. We note contracts tend to be very lumpy and there is a possibility that order wins could still exceed our reduced forecast. We would look to review our recommendation if IEV manages to clinch contracts worth more than RM250m this year.

Earnings Revision
· Slash earnings forecasts. We reduce our 2012 revenue forecast by 1.6%, and 2013’s by 53.4% to factor in lower-than-expected order wins in 2013. We also cut our 2012 and 2013 net profit forecasts by 29.7% and 49.5% respectively due to lower-than-expected project margins.

Valuation
· Downgrade to HOLD with a lower target price of S$0.56 (previously S$1.23), implying a 5.7% upside from the current price. We value IEV based on sum-of-the parts (SOTP) methodology, consisting of: a) the offshore engineering and natural gas distribution segments, valued at 7.2x and 6.3x 2012F PE respectively, at a 50% discount to peers’, and b) market value of IEV’s 20.5% stake in listed associate CNG Vietnam.
· Increased discount to peers. We increase the valuation discount from 30% to 50% to account for lumpy earnings and limited order visibility.