Starburst Holdings Limited’s (Starburst) 1Q16 improved but remained slightly in the red. 1Q16 revenue grew 135.3% YoY to S$6.8m due to the different work phases of projects between 1Q16 (mostly in design and fabrication phases) and 1Q15 (mostly in final installation phase), both in Southeast Asia (SEA) and Middle East (ME).

As a result of difference in work project phases, 1Q16 gross profit jumped 220.0% YoY to S$1.6m as gross margin increased 6.3 ppt to 23.5%. Given that 1Q16 revenue came mainly from projects in design and fabrication phase, project and production costs grew 114.4% to S$5.2m on higher material and fabrication costs. 1Q16 depreciation expenses also increased 131.8% mainly due to the purchase of its new leasehold property in Tuas.

Consequently, 1Q16 net loss narrowed 16.1% YoY to S$0.4m. We continue to expect earnings recovery in FY16, and will be seeking further clarity from management later today. Maintain BUY but place our FV under review for now. Note that Starburst will also trade on “ex-rights” (warrants issue) basis on 18 May.

Source: OCBC Research - 13 May 2016