CBHB’s 3QFY25 CNP came in at RM5.9m, bringing 9MFY25 CNP to RM21.6m after adjusting for RM6.7m in exceptional items. The results were below expectations at 56% of our forecast and 53% of consensus, mainly due to slower-than-expected revenue recognition.
Earnings have been revised downward by 20.7-28.2% for FY25-FY27F, mainly due to adjustments in revenue recognition, with a larger portion of the existing order book now expected to spill over into FY26F-FY27F. We also lower our FY26F order book replenishment assumption to RM204m (from RM414m), as resources are likely to be prioritised for existing large contracts, potentially delaying the mobilisation of new projects.
Following these revisions, the target price is lowered to RM0.47 (from RM0.60), based on 18x FY26F EPS of 2.6 sen and a three-star ESG rating. We downgrade the stock to HOLD (from BUY).
Below expectations. After adjusting for the expected credit loss reversal (-RM6.7m) and other exceptional items (-RM0.1m), CBHB’s 3QFY25 core net profit stood at RM5.9m, bringing 9MFY25 CNP to RM21.6m. The results were below expectations, accounting for only 56% of our full-year forecast and 53% of consensus estimates. The shortfall was mainly due to slower-than-expected revenue recognition from ongoing contracted projects.
QoQ. 3QFY25 CNP declined 40.4%, mainly due to weaker contributions from the M&E Systems division as newly secured projects were still in the early design and engineering stages. This was in line with the 47.2% drop in overall revenue, with M&E Systems remaining the core contributor. Despite the softer topline, CNP margin improved by 2.4%-pts to 18.8%, supported by a more favourable project mix, particularly higher-margin private data centre (DC) substation works.
YoY. 3QFY25 CNP declined 33.9% mainly due 25.3% dip in revenue.
Outlook. Earnings are expected to improve in the coming quarters, supported by progressing works under the RM532.3m order book (c.2.0x FY25 revenue). About 11% is scheduled for completion by end-2025, which should lift earnings in the next quarter. Most of the recently secured contracts are still in early stages with thinner margins, and stronger recognition is only expected from FY26 onwards as these projects remain in the design phase. Order book replenishment is likely to regain traction in 2026, with YTD wins already reaching about 90% of management’s internal target. The tender book remains healthy at RM730m, with around 80% comprising data centre projects, including 3 to 4 packages valued above RM100m each. The remaining 20% consists mainly of non-DC tenders, including close to RM100m of TNB-related works in Selangor.
Earnings revision. Given the slower-than-expected revenue recognition in FY25F, we expect the existing order book to be recognised largely in FY26F, with a smaller portion spilling over into FY27F. In addition, we believe CBHB may fall short of our earlier order book replenishment assumption for FY26F, as resources are likely to be prioritised for the execution of existing large contracts. Nevertheless, we think DC growth is inevitable, driven by ongoing digitalisation. As such, we are lowering our FY26F order book replenishment assumption to RM204m (from RM414m), while maintaining our FY27F assumption. Following these adjustments, our earnings forecasts are revised by -28.2%/-20.7%/-26.9% for FY25/26/27F, respectively.
Valuation & Recommendation. Post-earnings revision, we have lowered our TP to RM0.47 (from RM0.60), based on 18x FY26F EPS of 2.6 sen and supported by a three-star ESG rating. We downgrade the stock to HOLD (from BUY), as we believe the share price is now fairly valued. Given the slower-than-expected revenue recognition, we view a key re-rating catalyst emerging only when the group demonstrates its ability to scale project execution without straining internal resources.
Risks. Policy risks. Inability to secure new contracts. Spike in raw material costs such as copper and steel.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.097838 | 4.131518 |
| EUR | 4.792120 | 4.798274 |
| CNY | 0.581833 | 0.582557 |
| HKD | 0.526644 | 0.530460 |
| SGD | 3.165781 | 3.188834 |