Results

1HFY14 core PATAMI of RM13.1m (-65%) accounted for 12.7-19.7% of consensus and our full-year forecasts. We consider the results within our expectation as we expect the variation orders (worth RM36m) to be recognised in 2HFY14.

Deviations

None

Dividends

None.

Highlights

YTD… Revenue declined by 8% to RM453.3m as several major projects have reached their final stage of execution, while the newly awarded contracts were still at their engineering and contract mobilisation stages (in particularly, contracts in India). Given the slower project billings (coupled with higher project financing cost in its India operations), core PATAMI declined by 65% to RM13.1m.

QoQ… 2QFY14 core PATAMI declined by 73% to RM2.8m, due mainly to the costs incurred in preparation for the execution of newly secured material contracts.

Overview… As at 30 June 2014, Eversendai had total outstanding order book of RM1.7bn (Middle East: 75%; Malaysia: 13%; India: 12%). Despite its ability to replenish new contracts, we expect profitability to remain subdued on the back of intense competition.

Risks

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

Forecasts

Unchanged for now, pending further update with management. 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 1HFY14 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 - 29 Aug 2014