News

Eversendai’s wholly owned subsidiary, Eversendai Offshore RMZ FZE, has been awarded contracts valued at RM580m from Vahana Offshore.

The contracts involved engineering, procurement, construction and delivery of 2 units of fully equipped liftboats, Aryan and Arjun, in February and May 2016, respectively.

Vahana Offshore is jointly owned by Tan Sri AK Nathan (major shareholder and director of Eversendai) and his daughter, Shamila Nathan (50:50) and principally involved in the offshore support vessel and platform businesses.

Comments

1st major contract in FY14… After 2 years of contract disappointment, Eversendai has finally secured a major contract worth of RM580m in FY14. By far, this is the single largest contract, which Eversendai has secured since its listing in mid-2011.

Boost order book… Combined with previously announced RM172m contracts (series of projects in Middle East and India), Eversendai has secured RM752m YTD, achieving 50% of its annual targeted RM1.5bn new order book and 75.2% of our order book replenishment assumption. We estimate its current outstanding orderbook at RM1.7bn (1Q14 at RM1.1bn) or 1.7x its FY13 revenue.

Strengthen O&G segment… Traditionally known for its expertise in construction for steel and building structures, Eversendai has been foraying into oil & gas offshore and marine sectors. The new contract is strong starting point for the group to actively partake in the EPC of jack-up rigs, liftboats and related equipments, FPSO, and other offshore and onshore modular.

Risks

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

Forecasts

Unchanged, as the contract win is already part of our replenishment assumption.

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. Although the recent contract wins are welcome news and could help to make up for the weak 1QFY14 results, we still believe execution would be paramount in investors’ perception. 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- 28 May 2014