Results

1QFY13 earnings slipped by 13% to RM23.7m (3.06 sen/share), making up 17% and 18% of ours and consensus estimates respectively.

Deviations

Considered largely in line as we expect stronger earnings in the subsequent quarters.

Dividends

None. Dividends usually declared in the 2Q and 4Q.

Highlights

YoY… Revenue declined by 2%, due to slower progress for the Middle East projects while construction activities in India and Malaysia remained relatively stable. During the quarter, Eversendai also saw its maiden contribution from their 20% associate investment in Technics O&G, Singapore. As a whole, 1Q earnings slipped by 13% due to lower construction activities and additional costs for variation works incurred.

QoQ… Revenue was down by 11% mainly due to seasonal factor in the Middle East. Hence we should see activities in the Middle East to rebound in the 2Q. Earnings fell by 26% due to finalised variation orders which helped lifted earnings in the previous quarter.

Turned net gearing… Eversendai’s balance sheet turned into net debt of RM41.4m (net gearing of 5%) from net cash position in the previous quarter as the company gears up to invest in a new fabrication facility for their O&G venture in the Middle East.

Earnings visibility… Overall, Eversendai has an outstanding orderbook ~RM1.5bn, translating to 1.5x FY12’s revenue and 1.4x order book-to-market cap ratio.

Risks

Execution risk; Regulatory and political risk; Rising raw material prices; Unexpected downturn in the construction cycle; and Sharp fluctuation in forex.

Forecasts

Unchanged. Subject to revision after analyst briefing.

Rating

BUY

• Positives: (1) Additional new contract wins; (2) Success in the India and CIS market; (3) Accreditation to undertake O&G structural steel works.
• Negatives: (1) Continued appreciation of the RM vis-à-vis foreign currencies; (2) Low trading liquidity.

Valuation

• TP of RM1.82 based on unchanged 10x average FY13-14 earnings maintained. Subject to revision after analyst briefing.

Source: Hong Leong Investment Bank Research - 22 May 2013