Technics surprised on the downside this quarter, with revenue coming in a third below expectation and achieving a breakeven performance at the bottom line. We are cutting our revenue forecast by 15%, while reducing our EPS forecast by 10%. Downgrade to NEUTRAL with a TP of SGD0.95.
Big revenue miss, but gross margin up to 44% from 37%. The first and last quarters of the financial year are typically the weakest with the monsoon season preventing offshore work, but the SGD11.2m showing is weaker than our seasonally-adjusted SGD17m expectation, after factoring in the loss of revenue from deconsolidating the Norr Offshore Group (NOG). On the bright side, margins improved to 44% as a result of a stronger mix of high-margin EPCC contracts.
Other costs generally in line. The other costs generally fell in line with expectations, again after factoring in the NOG deconsolidation. The missing sauce this quarter was really the revenue recognition and the resultant contribution to earnings. Cutting estimates by 10%. We are cutting our revenue forecast by 15%, given the slow pace of order wins and no order book guidance from the company for the second quarter running. Our EPS falls by 10%, less than the revenue drop as the overall business is now higher-margin. This brings Technics to a likely SGD19.1m bottom line compared to last year's SGD20.2m.
Downgrade to NEUTRAL, with TP of SGD0.95 based on 11x FY13F EPS. We are lowering our multiple to 11x from 12x with the poorer profit outlook, resulting in a lower TP of SGD0.95 from SGD1.15. Our dividend forecast this year is also trimmed to 5¢ from 6¢. There are other oil & gas counters in our coverage with better growth profiles at lower multiples, with some offering equal yields, thus we recommend switching into stronger prospects.
