CIMB: FY08 results Outperform TP $0.49

30/05/2008

• Within expectations. FY08 net profit of S$43.2m (+400% yoy) was in line with our forecast of S$42.8m. Gross margins improved to 20.2% from 15.5% a year ago, attributable to improved operational efficiencies and better-margin contracts. 2HFY08 net profit rose 533% yoy to S$24.1m from S$3.8m in 2HFY07. A final dividend of S$0.005 and special dividend of S$0.004 were declared.

• Operational review. FY08 revenue rose 282% yoy to S$484m on strong demand for specialist foundation engineering (+287% yoy to S$449m) and equipment trading and leasing (+444% yoy to S$33.9m). Depreciation expenses rose sharply due to a reduction in the useful life of equipment from 15 years to 10 years.

• Improved financial position. CSC now has net cash of S$20.3m. It had managed its cash cycle well, with receivables at 38 days vs. payables at 100 days. Operating cash flow was S$50.7m vs. just S$2.2m in FY07.

• Positive outlook. Management remains optimistic of business prospects in the next few years. Current order book of S$400m is expected to expand further as it has been bidding for contracts. Management, however, acknowledged the potential adverse impact from inflationary pressures but given the nature of foundation engineering work, materials can be procured at fixed prices upon securing contracts. Also, CSC’s average contracts have short tenures of 3-6 months, which limits CSC’s exposure to fluctuating prices. A JV with Malaysia’s IJM Corporation is expected to develop new business revenues from the Middle East and India in the medium term.

• Maintain Outperform; lower target of S$0.49 (from S$0.57). With the Kok Tong acquisition aborted, we have cut our growth assumptions and reduced our net profit forecasts by 0.3-16.4% for FY09-10. We also introduce FY11 forecasts.

We continue to value CSC at 10x CY09 P/E, in line with P/E targets for industry peers. Our new target is S$0.49 (previously S$0.57) after our earnings reductions. Maintain Outperform on the back of a still-strong order book and mitigated cost pressures.