News

Eversendai announced a newly secured contract to renovate (upgrade) Khalifa Olympic Stadium in Qatar worth RM113m. The scope of renovation comprises re-engineering and dismantling of the existing lighting arch and ancillary steel structures, engineering, supply, fabrication and construction of steel structures.

YTD, Eversendai has managed to secure RM1.1bn contract (including RM580m RPT – related party transaction), on track to achieve its targeted RM1.5bn order book replenishment. Including the new contract, it currently has outstanding order book of RM1.7bn (1.76x FY13 revenue).

Comments

Priced-in… As guided during previous analyst briefing (in May 14), Eversendai was expecting RM250m worth of contracts. We believe this latest announced RM113m contract is the later part of the guidance, after it announced RM152.1m contracts in Qatar and India back in mid-June 14.

More project tendering… The group has a tender book worth of RM11-12bn, related to various projects in Malaysia, India and Middle East. The contract awards are likely to be speed-up given the stabilization of India and Middle East and accelerated ETP and Pengerang (in Malaysia), which may further boost Eversendai’s RM1.7bn order book.

Margins are of concern… For the past year, Eversendai’s performance has been dragged by cost overrun. Furthermore, new tender books are facing tough competition, affecting margins.

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 - 26 Aug 2014