HAWK: Core Earnings Outperform on Strong Margins, Target Price Raised to RM0.37
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.37 (+32.1%) |
| Last Traded | RM0.28 |
| Recommendation |
Steel Hawk Berhad (HAWK) reported a 9MFY25 core net profit of RM15.6 million, significantly exceeding both internal and consensus expectations, representing 91% of the full-year forecast. The strong performance was primarily attributed to better-than-expected margins, driven by the company’s ongoing cost optimisation and resource reallocation initiatives. However, headline profitability was partly overshadowed by a substantial one-off bad debt write-off.
Performance Review
The company’s core earnings for 9MFY25 excluded exceptional items, notably an RM8.9 million bad debt write-off. This write-off pertains to a customer currently undergoing winding-up proceedings, with management taking a prudent approach due to the low recoverability. This negative impact was partially offset by a RM3.8 million reversal of over-accruals related to insurance, professional, and stamping fees, resulting in a net one-off impact of approximately RM5.1 million. This led to a sharp increase in administrative expenses during the period.
On a year-on-year basis, 3QFY25 revenue saw a slight decline of 2.7%, primarily due to slower work order issuance and deferred planned activities by PETRONAS. This was somewhat cushioned by contributions from the Ibrahim & Sons collaboration. Consequently, reported Profit Before Tax (PBT) fell 51.2% YoY, largely due to the aforementioned bad debt write-off, although the underlying cost structure remained stable.
Conversely, quarter-on-quarter, 3QFY25 revenue surged by 73.3%, propelled by stronger job execution under the Ibrahim collaboration. PBT also rose 6.8% QoQ to RM1.7 million, reflecting improved operational performance despite the persistent weight of exceptional items on headline figures.
Outlook and Impact
In light of the robust core performance and proactive cost management, TA Securities has revised its FY25/FY26/FY27 earnings forecasts upwards by +23.0%, +22.1%, and +22.0% respectively. This adjustment reflects the sustained positive margin performance and management’s commitment to efficiency.
The company’s Expanded EPCC orderbook has seen significant growth since early August, climbing from RM94.8 million to RM190.8 million. This expansion follows the recent securing of two new contracts totaling RM96.0 million (RM35.0 million from Binalite Engineering and RM61.0 million from Sega Elektrik), providing earnings visibility through 2027. While an updated orderbook figure post-3QFY25 results is pending from management, the lower-than-expected revenue recognized this quarter relative to the substantial orderbook on hand suggests a larger portion of project progress will be recognized in 4QFY25. A stronger revenue performance is anticipated in the coming quarter as progress billing continues to ramp up under the Ibrahim & Sons collaboration.
Analyst Recommendation
Following these positive developments and earnings revisions, TA Securities has upgraded its recommendation for the company from “Sell” to ““. The target price has been raised to RM0.37 per share (from RM0.31), based on 8.5x FY26F EPS and incorporating a 3% ESG premium, representing a 32.1% upside from the last traded price of RM0.28.
