BERHAD: Construction Group’s Earnings Miss Forecasts Despite Margin Gains, Outlook Buoyed by Robust Order Book

A major construction and infrastructure group reported a 4.7% year-on-year increase in its first-quarter FY26 net profit to RM215.1 million, despite a 7.2% decline in revenue to RM3.8 billion. The results, however, fell short of both PublicInvest Research’s and consensus expectations, accounting for only 16.6% and 15.4% of respective full-year estimates.

Performance Review

The dip in revenue was primarily attributed to the absence of a significant, non-recurring revenue contribution from a UK West Hampstead property project recognized in the previous year. Excluding this specific project, revenue would have seen a 3% year-on-year growth, largely supported by stronger contributions from domestic construction projects and Quick Turnaround Projects (QTPs) in Vietnam, notably the Eaton Park project. Domestic Engineering & Construction (E&C) revenue notably surged 52.7% year-on-year to RM1.3 billion, representing 41.3% of the total E&C segment’s revenue. The group also benefited from improved margins in its domestic E&C division and higher net profit from overseas property.

However, the quarter also saw challenges, including delays in the award of several domestic contracts and softer-than-expected contributions from overseas operations. Many overseas construction projects are still in their early stages, and there was a temporary gap in activity as the Sydney Metro West Tunnelling Package (SMW-WTP) nears completion. This decline in the overseas E&C division partially offset gains elsewhere. The shift in project mix towards domestic contracts helped in steady margin improvement, with the net margin for E&C averaging around 5.1% compared to 4.6% a year ago.

Future Outlook and Growth Drivers

Despite the mixed quarterly performance, the group’s prospects remain strong, underpinned by a robust outstanding construction order book of RM37.0 billion. The pipeline for new projects is encouraging, with an estimated RM30.0 billion in new wins anticipated by the end of calendar year 2026. These opportunities are spread across various sectors, including water infrastructure, data centers (DC), renewables, rail, and highways in Malaysia, Australia, and Taiwan.

In its property division, unbilled sales are estimated at RM8.0 billion, providing clear earnings visibility for the next three to four years. The group is targeting FY26 sales of RM5.5 billion, driven by sustained momentum from Vietnam QTPs and new mid-to-upper range launches in Malaysia. Furthermore, the expansion of its DC pipeline is expected to see several more packages awarded soon. The group is also actively building recurring income streams through investments in renewable energy, water assets, and digital infrastructure, leveraging joint ventures and concession agreements to secure long-term cash flows from projects like the Ulu Padas Hydro and Northern Perak Water Supply schemes.

PublicInvest Research maintains its “Outperform” recommendation on the stock, with an unchanged SOTP-based target price of RM6.20. The investment bank anticipates the group’s performance to pick up significantly in the coming quarters, driven by its robust order book and expanding project pipeline.