Below expectations. 3QFY09 core net profit of S$7.5m (-36.5% yoy) was below expectations, with 9M09 net profit of S$33.5m constituting only 65.9% of our full- year estimate due to a more marked slowdown in the private sector. Revenue fell 6% yoy to S$123m, on lower demand for construction services across the board due to the global economic slowdown. No dividend was declared.

Gross margins held steady qoq, at 16.5% in 3Q09, but were down from the 20.6% in 3Q08. This was mainly due to industry-wide increases in costs as manifested in earlier quarters and growing competition, even within specialist foundation engineering services where CSC is deemed the largest player.

Order book remained good, at S$190m, to be mostly delivered within the next 12 months. Although CSC guides that the private-sector slowdown would have an impact on the group, it also highlights that the recent government budget to pump- prime the economy via the construction sector has yet to materialise. Tenders for new public-sector projects should begin from 2H09 onwards. We believe that CSC would be a beneficiary of these projects as it is the largest player in its segment.

Outlook. BCA forecasts construction demand of S$22-28bn for 2009, in line with government efforts to bring forward projects earlier postponed as well as new ones. The corporate rate tax cut of 1% and Jobs Credit scheme should also cushion the impact of higher costs for contractors.

Maintain Outperform. We cut our FY09-11 forecasts by 25-39% to account for the faster-than-expected slowdown in the private sector but remain optimistic on CSC securing public-sector projects in due course. Despite our earnings downgrade, CSC is strongly positioned in the foundation engineering segment, supported by a strong balance sheet and operating cash flows. We maintain our 0.8x CY09 P/BV target valuation, which translates to a lower target price of S$0.13 (from S$0.15) after our earnings cuts, in line with its current book value of S$0.134.