This article first appeared in The Edge Financial Daily on May 25, 2017 - May 31, 2017

Pesona Metro Holdings Bhd
(May 24, 67 sen)
Maintain buy with an unchanged target price of 81 sen: Pesona Metro Holdings Bhd reported its first quarter of financial year 2017 (1QFY17) results with revenue of RM160.5 million (+52% quarter-on-quarter [q-o-q], +61% year-on-year [y-o-y]) and earnings of RM6 million (+37% q-o-q, -3% y-o-y).

1Q earnings made up 19% of our full-year forecast which we deem to be within expectations as momentum should accelerate in the coming quarters.

We are not concerned about the flattish earnings in 1Q (-3% y-o-y) as other income was exceptionally high in the same period last year (RM7.9 million) due to interest earned on receivables for the Universiti Malaysia Perlis (UniMAP) project.

More importantly is the strong earnings momentum q-o-q (+37%) driven by the execution of its sizeable order book of RM1.9 billion (five times cover on FY16 construction revenue). Following a quiet 1QFY17 for job wins, management expects this to pick up soon enough and is confident to achieve RM500 million for the year.

In the near term, Pesona Metro is in the running for a hospital job (RM100 million). It is also finalising a tender for a building job (RM300 million to RM400 million) and some road works.

The acquisition of SEP Resources (M) Sdn Bhd (eventual concessionaire of the UniMAP hostel) has been delayed from 1Q to 3Q due to delays in obtaining the certificate of acceptance.

Management expects this to be resolved soon as all the necessary defect works have been fixed and students have been occupying the hostel since 4QFY16. — Hong Leong Investment Bank Research, May 24