Comment on Results
IRL posted FY07 results that were below expectations, as earnings declined by 33% yoy to S$17.4m as revenue also dipped by 14% yoy to S$127m. Excluding an exceptional investment gain of S$13m, core net earnings would have fallen by 83% yoy. The Group also posted a very poor 4Q07, which saw the Group slip into losses for the first time since 3Q02, or more than 5 years ago, as the Group’s bottom line was impacted by higher material costs as well as forex losses of c. S$3m in the quarter. 4Q07 losses came in at S$4.2m versus a profit of S$4.4m a year ago.
A final net dividend of 0.5cts was declared.
Recommendation
Current order book stands at S$113m and the Group continues to bid for more contracts globally. Whilst FY08 revenue may improve from FY07, we are now increasingly more concerned about higher material costs squeezing the Group’s margins. We have lowered our FY08 earnings estimates by 40% to S$13.7m
to account for lower margins, although there still may be more downside risk to our estimates given the really weak 4Q results that we saw.
We downgrade the stock to a SELL, with a target price of S$0.42, based on 10x our new FY08 earnings estimates.
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