Results

1Q14 core PATAMI (after total EI adjustment of RM0.7m) fell by 51% to RM10.3m (1.33 sen/share), achieving 15% of HLIB’s FY14 estimates and 11% of consensus.

Deviations

Due to lower contribution from Middle East projects and lack of new contract wins.

Dividends

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

Highlights

YoY… Revenue declined by 5%, due to slower progress from the Middle East and India projects, partly offsets by higher recognition from Malaysia (related to Manjung 4 and Tanjung Bin coal-fired power plants). As a whole, 1QFY14 earnings slipped by 51% mainly due to lower gross margins from Middle East projects.

QoQ… Revenue was down by 3% mainly due to ending of several Middle East projects in previous quarter. Nevertheless, we are expecting activities in the Middle East to rebound in the 2Q. Earnings improved from loss of RM10.5m in 4QFY13 to RM10.3m profit in 1QFY14, due to additional costs for variation works incurred in previous quarter.

Overview… 1QFY14 revenue remained weak due to the lack of new contract wins over the past years (RM923.9m in FY12 and RM669m in FY13). As at 31 March 2014, the outstanding order book was ~RM1.1bn (Middle East 65%; Malaysia 25%; and India 14%), after Eversendai secured RM151.3m worth of new contracts in 1QFY14 (only 10% of its RM1.5bn annual order book replenishment target). It has a tender book worth of RM15.5bn. Due to the everincreasing competition, margin is expected to be subdued.

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 post analyst briefing on 28 May 2014.

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

Maintain TP at RM1.01 based on unchanged 10x FY15 earnings.

Source:Hong Leong Investment Bank Research - 27 May 2014