Comment on Results
3Q08 net profit fell 39% y-o-y to S$1.86m, significantly lower than our S$3.0m expectation. The main culprit was lower turnover (-22% y-o-y)coupled with higher operating expenses. Management attributed the weaker turnover to project delays, some of which should be recognized in 4Q08.
Operating expenses rose due to higher payroll and related costs.
Total cash stood at S$26.4m, lower than S$39.5m in 2Q08 due to additional S$19m cash held up in work-in progress in the quarter.
Project delays are not uncommon in this line of business, but we believe the broad economic slowdown could prevent a meaningful recovery soon.
Recommendation
We lower our FY08F and FY09F earnings by 10% and 35%, respectively, after imputing lower turnover assumptions. Accordingly, our target price is lowered to S$0.24, pegged to 10x FY09F earnings, and the counter downgraded to Fully Valued. The anticipated 3 cents dividend per share at the end of the year is a key attraction, but business prospects in this industry do not seem to inspire confidence in the stock.
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