Pesona Metro likely to face slowing macro job flow outlook

This article first appeared in The Edge Financial Daily, on September 6, 2018.
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Pesona Metro Holdings Bhd
(Sept 5, 35 sen)
Maintain hold with a higher target price (TP) of 32 sen:
Pesona Metro Holdings Bhd announced that it had been awarded a new contract from TA Global Bhd worth RM264.3 million for the construction of serviced apartment in Bandar Sri Damansara, Petaling Jaya.

 
The work commenced on Aug 15, 2018 and will be completed in 32 months.

This is the fourth construction job win for the company which brings the year-to-date (YTD) sum to RM860 million, exceeding our full year replenishment assumption of RM500 million. Pesona’s total order book now stands at around RM2.2 billion, translating into a decent cover of 4.3 times on financial year 2017 (FY17) construction revenue.

While these contract wins are positive, we remain cautious on the overall macro job flow outlook. This follows the new government’s move to put all megaprojects under review which would inevitably result in project rollout delays or outright cancellations.

Increase FY18 to FY20 earnings forecast by 1.4%, 7.5% and 17.3% respectively after adjusting FY18 order book replenishment assumption as YTD construction job win exceed our full year target of RM500 million. We assume no further job win in the rest of FY18 due to slowing job flow post 14th general election.

Maintain “hold” rating with higher TP of 32 sen (from 30 sen previously) following earnings forecast adjustment. FY18-20 implied price-earnings ratio of our TP are 15.4 times, 9.4 times and 6.6 times respectively. Despite its decent order book level, we remain cautious on the slowing macro job flow outlook. — Hong Leong Investment Bank Research, Sept 5