News

Successfully secured a series of structural steel projects collectively worth ~RM172.2m in the Middle East and India.

Details of the projects are:

(1) Dana Island complex in Doha and substructure portion for the connectivity to Lusail City Development, Qatar;

(2) Facility for International Airport in Jeddah, Saudi Arabia,

(3) Entertainment centre and architectural landmark in Dubai;

(4) Grand mosque in Al Ain, Abu Dhabi, and

(5) Sky bridge in Kolkata, India

Comments

1st major announcement win… The collection of contracts secured is a welcomed development for Eversendai after failing to meet its annual order book replenishment target of RM1.5bn over the past 2 years whereby only RM669m worth of projects was secured for FY13.

Decent size... The latest orders are of significant size as it represents 15.7% of Eversendai’s previous outstanding order book of RM1.1bn and 17.8% of FY13’s revenue.

Earnings visibility… Estimated outstanding order book has been lifted slightly to RM1.27bn, translating to 1.3x FY13’s revenue.

Risks

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

Forecasts

FY14 earnings slashed by 32.8% to RM66.5m (8.6 sen/share), mainly due to slower execution progress for its projects and lower margin assumption while introducing FY15 earnings forecast.

Rating

HOLD

Too much expectation for earnings growth and contract flows have been priced in Eversendai’s share price and it will take earnings recovery in the subsequent quarters to regain back investors’ confidence. Hence, we are maintaining our HOLD call on the company until signs of improvement.

Valuation

Target Price reduced by 21.1% to RM1.01 from RM1.28 previously as we rollover Eversendai’s valuation based on unchanged 10x FY15 earnings.

Source: Hong Leong Investment Bank Research - 30 Apr 2014