| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates that interim core net earnings for a prominent construction group fell short of both internal and consensus expectations, primarily due to project execution delays and margin compression. Despite the immediate earnings setback, the bank maintains a “Buy” recommendation, citing a robust order book and promising future prospects.
Performance Review
The group reported core net earnings of RM21.7 million for the first half of fiscal year 2026 (IHFY26), which accounted for only 27.2% of the full-year forecast by the investment bank and 28.6% of street estimates. This earnings miss was largely attributed to slower-than-expected progress billings from certain property projects, hindered by execution delays. Additionally, the group experienced margin compression stemming from fewer active projects, coupled with higher administrative expenses and construction costs.
On a year-on-year (YoY) basis, revenue saw a significant jump of 124.8%, primarily propelled by additional earnings contributions from a newly acquired entity and a stronger order book burn rate. Profit Before Tax (PBT) also surged 83.9% YoY. However, on a quarter-on-quarter (QoQ) basis, while revenue grew 14.8% due to a stronger order book burn rate, core net profit contracted by 9.3%, impacted by lower other income and a reduced gross margin.
An interim dividend of 1 sen per share was declared for the quarter.
Future Outlook and Investment Perspective
Following the slower-than-anticipated order book burn rate, the investment bank has recalibrated its FY26 earnings forecast downward by 21.2%. However, FY27 and FY28 estimates have been uplifted by 1.8% and 3.9% respectively, reflecting the deferral of earnings recognition into later periods.
The group’s total outstanding order book stands at a substantial RM1.44 billion, providing a strong 6.5x coverage of FY25 revenue and ensuring earnings visibility over the next three years. Year-to-date in FY26, the group has secured RM234.8 million in new jobs, representing approximately 24% of its FY26 new job win assumption. Despite the slower pace of order book replenishment, the investment bank believes the group is well-positioned to secure the remaining tenders in the coming months.
This optimistic outlook is supported by a robust external property construction tender book of RM648 million and M&E related work tenders valued at RM394.3 million. The investment bank anticipates that the group will remain a key beneficiary of the sustained strength in the domestic property market and the accelerating demand for Mechanical & Electrical (M&E) works driven by the expanding data centre project pipeline.
Consequently, the investment bank has marginally raised its target price for the stock to RM0.83 per share (from RM0.82 previously), based on a target price-to-earnings ratio of 16x CY27 EPS, and reiterates its “Buy” recommendation. The positive recommendation is underpinned by solid earnings visibility, strategic exposure to the high-growth data centre sector, and robust double-digit net margins.
