UNVIEW: Profit Estimates Revised Down Amid Project Delays and Margin Compression
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Recent financial results have fallen below expectations, driven by delays in new project commencements and the completion of previous large-scale solar (LSS) initiatives in the preceding quarter. The weaker-than-anticipated revenue contributed to core net profit estimates for the full financial year 2026 (FY26F) being significantly below initial projections.
The company experienced a compression in its gross profit margin, declining to 9.7% in the first quarter of FY26 from 10.3% in 6QFY25. This downturn is attributed to lower progress billings and an increase in interest expenses, which is expected to dilute the earnings contribution from any new projects. Furthermore, the group’s net gearing increased to 137% as of end-December 2025, up from 126% in September 2025, primarily due to reduced cash balances. Further borrowings to fund solar asset acquisitions are expected to push net gearing even higher.
Performance Review and Challenges
Operational challenges include a weakening topline performance as several LSS projects reached their final stages. Prospects for profit margins are expected to face further pressure due to rising solar panel prices, wages, and transportation costs. The unbilled order book also saw a sharp decline, dropping to RM76.5 million at end-December 2025.
A mitigating factor was the normalisation of the effective tax rate to 24% in 1QFY26, a significant reduction from 95% in 6QFY25. This partially offset the impact of the weaker revenue performance.
Future Outlook and Recommendation
Looking ahead, the company plans to bid for RM5 billion worth of new solar EPCC projects, including LSS 6 and CRESS. However, robust order book replenishment is critical, especially given the current low level of unbilled orders. The group’s balance sheet remains stretched, necessitating careful management of working capital and debt.
Given these factors, the investment bank has maintained its “HOLD” recommendation, with a revised target price of RM0.35 per share, down from RM0.37 previously. This valuation reflects a discount due to the company’s high gearing and lower return on equity compared to its solar EPCC peers. While acknowledged as an established player in the domestic EPCC segment, a stronger balance sheet is deemed essential for a potential re-rating.
