PMBTech ... Aug10

S & P Results Review & Earnings Outlook

• PMBT’s 1H10 results came in within our expectations despite net profit of MYR2.7 mln accounting for only 45% of our 2010 estimate. We expect 2H10 to be stronger on account of more domestic construction and fabrication works in progress.

• 1H10 revenue was marginally better (+0.7% YoY) as higher revenue from its manufacturing and trading segment (+6% YoY) was offset by lower contribution from the construction and fabrication segment (-7% YoY). Nevertheless, profit margins from both segments improved (1H09 margins were affected by the global economic crisis) and boosted operating profit by 54% YoY.

• Revenue for 2Q10 improved 20% QoQ with the construction and fabrication division growing 46% QoQ. This was somewhat expected, as timing issues affected this segment’s revenue contribution during 1Q10. Operating margin, however, halved, as variation orders for some work are pending finalization and should come in by 2H10.

• 2H10 is likely to be stronger compared to 1H10, given higher construction works in progress. We maintain our 2010 and 2011 net earnings forecasts.

Recommendation & Investment Risks

• We maintain our Buy recommendation on PMBT with an unchanged 12-month target price of MYR0.55.

• We continue to base our valuation methodology on a blend of PER and P/B. We apply a target PER of 7x and P/B target of 0.5x (both unchanged) to PMBT’s 2010 EPS and BVPS respectively. The target multiples are benchmarked to historical averages.

• At an undemanding 2010 PER of 6x, we believe PMBT’s valuation is inexpensive. Nevertheless, given its small size in terms of market capitalization, share price performance will likely be capped, which is a factor in our recommendation despite our target price warranting a more aggressive call.

• PMBT announced an interim dividend of 1.5% (or 0.75 sen), which translates to a yield of 1.7%.

• Risks to our recommendation and target price include: (i) volatility in demand and pricing of aluminum and aluminum products and (ii) a sudden downturn in the global and/or domestic economy, which will impact its construction and manufacturing divisions.