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Core Projects & Technologies: Positives priced in; Hold
Higher blended margins. Core Projects & Technologies’ (CPTL)
2Q revenue grew 39.1% yoy. CPTL’s order book stands at `7bn at
present. Higher-than-expected product/license revenue resulted in
blended margin expanding 393bp yoy. We maintain our target price
of `325; however, we downgrade the stock to Hold from Buy.
Key highlights – 2Q results. CPTL’s 2QFY11 revenue was
`2,791m (+39.1% yoy). Margins stood at 35.7% (up 393bp yoy).
Revenue from the education business was `2,120m (up 42.5% yoy),
mainly led by product/license sales of `625m (up 22.9% yoy).
Consolidated net profit stood at `535m (up 44.9% yoy).
Sturdy order book. The company’s order book was ~61% of
FY11e sales. Total order book was `7bn (vs. `6.5bn in 1QFY11).
Orders worth `475m would be executed in FY11 (41% of FY11
sales).
Acquisition. The company made twin acquisitions in the US –
Technical Systems Integrators (TSI) and the Keenan & Keenan
Group (KKG) – for US$25m in all-cash deals. The acquisitions will
strengthen CPTL’s position in the US K-12 segment.
Valuation and risks. At our target price of `325, the stock would
trade at 16x 12-month forward earnings, which is at ~20%
discount to Educomp and industry average. Upside risks: increase
in government funding and tie-ups; downside risk: unfavorable
currency movements.
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