The outlook for FY19 is muted. In our recent reports, we had been stating our expectation of near-term PATMI weakness due to transitional ramp-up of new projects. Despite the additional revenue recognition, margins expansion has not been as rapid as we had expected. Integration downtime is also likely to arise for the new Tuas South laundry plant (refer to Appendix). However, we do see a general trend of improving margins and cash-flow in the coming quarters, though not necessarily sequentially. We expect earnings this year to be lower than last year, but maintain our forecast of 1.5 cent full year dividend (higher than last year’s 1 cent) in view of the better cash-flow.
The outlook for FY20 is positive. We expect an earnings recovery in FY20. Cash-flow to improve significantly due to the high-operating leverage (significant non-cash adjustment for depreciation), coupled with the significant reduction in capex. Ending cash balance to increase significantly, raising the possibility of a much higher dividend declared in FY20. We forecast 2 cents dividend for FY20, but hold the belief that the Company has the ability to declare 4 cents dividend in FY20.
Downgrade from BUY to Neutral; new target price of $0.80 (previously $1.03)
We raise our estimates for purchase of supplies and disposal charge. Our FY19e and FY20e earnings estimates are consequently slashed by 45% and 43% respectively. Our target price gives an implied FY19e forward P/E multiple of 18.2x.