Vivocom’s 9MFY17 results below estimates

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KUCHING: Vivocom Intl Holdings Bhd’s (Vivocom) first nine months of financial year 2017 (9MFY17) results have come in below expectations, but analysts believe that financial year ended 2018 (FYE18) could be a better year for the group.

As per Vivocom’s current year to date ended September 30, 2017 results, net profit amounted to RM17.23 million, down from RM53.04 million.

For the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the group’s 9MFY17 earnings came in below expectations, with net profit accounting for 5.2 per cent of its full-year forecasts respectively.

“The stark deviation was due to lower revenue recognition from projects due to progress billings and delays in certification of construction progress,” it said.

Moving forward, MIDF Research made slight variations to its assumption as the research arm believed that FYE18 could be a better year for Vivocom to recognise the group’s billings for is orderbook level but the progress will be slower.

Thus, the research arm trimmed its earnings forecast for FYE17 by 25 per cent from RM99.9 million to RM79.9 million to reflect a slower billings recognition. This has resulted in a 30 per cent reduction from the indicative value stemming from construction segment from RM806.5 million to RM620.6 million, resulting into – 22.8 per cent of Vivocom’s per share value from 0.249 sen to 0.192 sen.

“That’s why, we are expecting that Vivocom will continue to continue to bid for affordable housing and infrastructure projects in Perak, Terengganu and Klang Valley.  We have reasoned before in our previous note that the Vivocom’s margin is facing stiff pressure from higher mobilisation costs.

“The projects then would be strategic as it would be connected to mixed development with lower mobilisation cost hence maintaining its current margin level,” the research arm said.

MIDF Research thus reaffirmed its ‘buy’ recommendation with a target price of RM0.33 per share based on discounted cash flow (DCF) with weighted average cost of capital (WACC) of 7.4 per cent and an enlarged share base.