EUR 4.56 For Business Accounts Only

JKSB Quarterly Highlights_Access Engineering PLC (AEL)_1QFY18

AEL reported a moderate 13% YoY increase in Group earnings for 1QFY18, with a marginal increase in PBT (+1% YoY) being augmented by lower tax expenses for the core construction business due to AEL providing for deferred tax of 12% on construction income in 1QFY18 vs. a tax rate provision of 28% over 1QFY17-3QFY17 (which was subsequently reversed in 4QFY17). The drag on Group PBT stemmed from operating margin contraction and a sharp increase in net finance cost for the construction business - due to utilisation of interest earning deposits for investment in its new property development project in Jan 2017 - which largely offset Group topline growth. AEL’s confirmed order book amounted to ~Rs. 36bn as at end June 2017. Confirmed new projects added to the order book during 1QFY18 include 1) piling work of ~Rs. 1.7bn on phase 3 of the Havelock City project; and 2) roughly Rs. 400mn in new road projects.

 We maintain our full year earnings projection of Rs. 2.9bn (+6% YoY) for FY18E. While AEL has provided for a deferred tax rate of 12% in 1QFY18, we prefer to conservatively provide for a 28% tax rate until there is more visibility on timelines and likelihood of implementation of proposed tax changes. Phased out commercial operations have now begun at Access Towers 2, which should contribute incrementally to property segment revenues from 2QFY18 onwards, and margins should improve for the construction materials business over the coming quarters once the new concrete batching plant ramps up. At its current price of Rs. 26.10, AEL trades at a FY18E P/E of 9.1x, at a slight discount to our coverage universe P/E.