Tuesday July 8, 2008 MYT 2:44:00 PM
Lower earnings ahead for EPIC
KUALA LUMPUR: Aseambankers Equity Research had reduced Eastern Pacific Industrial Corporation Bhd’s (EPIC) core earnings forecast for financial year ending Dec 31 by 5%, as it expects zero growth.
The research house said Tuesday changes in the leadership at the company and at the state level had affected EPIC’s daily operations.
It came to understand that the new leadership wanted EPIC to focus on growing its oil and gas (O&G) operations (the Kemaman Supply Base, Kemaman Port, Mushtari) and turning around its loss-making complementary operations; Tubex and Natuream.
“Potential mergers & acquisitions and recent high-impact projects could be put on hold. Also, the new management may not be keen to pursue the proposed fabrication yard venture via T-Fab,” it said.
Aseambankers Research said EPIC’s move to revert to its supply base and port operations was good as these operations generated consistent cash flow and were less subjected to cyclical factors.
However, uncertainties in policy direction due to recent change in the state leadership and EPIC’s business model had affected its performance. It added that net profit in the first quarter fell 5% year-on-year and down 26% quarter-on-quarter.
“If remained unchecked, these issues may have a more pressing impact on EPIC’s 2H08 results. Consequently, we lower FY08’s core earnings forecasts by 5% but keep FY09’s forecasts unchanged,” it said.
The research house said the 5% downgrade for FY08 was based on lower turnover and earnings before interest and taxation (EBIT) margin assumptions.
Despite fully consolidating Mushtari’s earnings from January this year, it said EPIC was poised to report flattish core performance (zero growth) in 2008, dragged down by unforeseen cost (employee share option scheme expenses, T-Fab’s administrative costs).
It projects earnings to be RM33.4mil for FY08 and RM38.9mil for next year. For FY07, it posted net profit of RM33.3mil.
“Downgrade to fully valued hold with a lower RM1.63 target price (7.0 times 2009 earnings per share versus 8.0 times previously).
“Although share price has fallen 35% year-to-date, EPIC’s single-digit price-to-earnings ratio (PER) valuations are warranted for a low-liquidity small-cap stock which is unlikely to generate much interest in thinning volume conditions,” it said.
However, it added that EPIC remained a take-over target with Ahmad Zaki Resources Bhd was said to be eyeing Perbadanan Memajukan Ikhtisad Negeri Terengganu’s 39.2% stake.
Aseambankers Research said should this materialise, it could trigger a general offer. AZRB bought Lembaga Tabung Haji’s 20.4% stake at RM2.40 per share in July last year.
EPIC : [Stock Watch] [News]
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