Results

9MFY13 core PATAMI (adjusted for RM3.8m forex gain and RM1.3m fair value loss) fell by 55% to RM39.0m (5.36 sen/share), missing estimates by making up 33% and 38% of ours and consensus estimates respectively.

Deviations

Due to slower construction billings in the Middle East division and losses in India operations.

Dividends

None. Most likely declared in 4Q.

Comments

3Q review… 3Q revenue fell by 2%/5% YoY/QoQ to RM236.1m mainly due to weakness in India’s operations. GP margin for the quarter has also been on a declining trend from 16-23% to 12%, mainly due to losses in India which suffered from downward revision of budgeted profits in view of unfinalised variation claims. Overall, 3Q core PATAMI plunged by >90% to RM1.4m. The poor performance was dragged down further by higher start-up costs for its new business ventures in O&G (Technics O&G) and higher financing costs.

9M review… 9M revenue dipped by 3% to RM726.8m, mainly weighed down by Middle East operations as order book replenishment over the last 3 years have been slow and projects in hand have failed to progress as expected. Overall, core PATAMI fell by 55% to RM39.0m.

Risks

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

Forecasts

Slashed FY13-14 earnings by 47%-27% to factor in the slower than expected construction progress.

Rating

HOLD

We continue to favour Eversendai for its niche and expertise in building iconic steel structures. However, while waiting for its business development plans to bear fruits, the weak earnings will have a negative impact on its share price, and it may take a while longer for investors’ sentiment to improve. Hence, we downgrade the company to a HOLD call.

Valuation

Due to lower forecasted earnings, our Target Price is reduced by 22% to RM1.28 from RM1.65 previously, based on unchanged 10x FY14 earnings.

Source: Hong Leong Investment Bank Research - 29 Nov 2013