This article first appeared in The Edge Financial Daily on February 14, 2018

Kejuruteraan Asastera Bhd
(Feb 13, 25.5 sen)
Maintain buy call with an unchanged target price (TP) of 37.5 sen: Excluding listing expenses estimated at RM3.1 million, Kejuruteraan Asastera Bhd’s (KAB) core net profit of RM9.9 million for the financial year ended Dec 31, 2017 (FY17) came in above our expectations, accounting for 118.4% of our full-year estimate. The variance was mainly due to stronger-than-expected margins.

Sequentially, core net profit in the fourth quarter ended Dec 31, 2017 (4QFY17) surged 33.7% to RM3.2 million, driven largely by margin improvement. Its 4QFY17 performance was the strongest quarterly results for FY17. It recorded highest sequential revenue for the year at RM31.3 million, as well as the strongest quarterly gross margin of the year at 22.5%, versus its FY17 full-year gross margin of 19.2%.

Year-on-year, KAB’s FY17 core net profit surged 51.1% as full-year revenue jumped 23% to RM114.6 million, further boosted by an improvement in gross margin from 17.1% to 19.2%.

Post-KAB’s initial public offering listing in November 2017, the reporting quarter saw its balance sheet improve from a slight net debt position of RM900,000 in the immediate preceding quarter to a net cash position of RM12.7 million or four sen per share.

We maintain our FY18 and FY19 earnings projections at RM10 million and RM11.9 million. Earnings forecasts for FY20 are introduced with net profit estimated to grow 7.6% to RM12.8 million. The company has an outstanding order book of RM217.1 million, sufficient to provide earnings visibility for the next two years.

We maintain our TP of 37.5 sen, based on unchanged 12 times earnings estimate for calendar year 2018. We maintain our “buy” call on KAB as the stock trades at an undemanding forward price-earnings multiple of eight times. — TA Research, Feb 13