News

• Smallish contract win. Eversendai announced that it has secured the structural steel works for the Nas Indoor Futsal and Volleyball Arena (5000 gross seating capacity) in Dubai worth RM44m.

Comments

• Good start to 2015. This marks Eversendai’s first contract win for 2015 (FY14: RM1.2bn). We estimate its orderbook to currently stand at RM1.4bn, providing 1.5x cover on FY13 revenue.

• Vying for Warisan Merdeka. Apart from its usual structural steel jobs from the Middle East, we expect to see some traction domestically. Of particular int erest is the RM3bn Warisan Merdeka which is at the final tender evaluation stage to select the main contractor. At 15-20% of contract value, the structural steel works for Warisan Merdeka would amount to RM450-600m. Having undertaken some of the tallest buildings in the Middle East and Malaysia, we believe that Eversendai stands a good chance to secure the structural steel works for Warisan Merdeka.

• ...and RAPID too. With the initial portions of RAPID already dished out to the main contractors, Eversendai s hould soon benefit from the structural steel subcontracts. Contract flows should be expected anytime soon as it has been constantly receiving budgetary quote requests from the main contractors.

Risks

• Falling oil price. This would reduce capex by oil majors which in turn would reduce contract flows. To amplify on the downside, Eversendai’s newly established O&G division is facing high start -up costs.
• Continued VOs. Eversendai has been suffering from variation orders (VOs) since 2QFY13 for its jobs in India and Qatar resulting to it having to recognise additional cost with no offsetting revenue as the accounts have not been finalised.

Forecasts

• Unchanged as this recent job win is already captured via our RM1.2bn orderbook replenishment assumption for FY15.

Rating

HOLD TP: RM0.57

• Maintain HOLD as potential excitement from contract wins are likely to be offset by weak earnings stemming from high start-up costs for its O&G ventures and continued VOs.
• Sentiment on Eversendai is likely to remain weak in this low oil price environment as (i) it derives most of its contracts from nations dependent on petrodollar revenues and (ii) O&G job flows are likely to taper off.

Valuation

• While there are no changes to our earnings forecast, we apply a 20% discount to our SOP based TP to reflect the abovementioned risks and weak sentiment from low oil price. TP is reduced from RM0.72 to RM0.57.

Source: Hong Leong Investment Bank Research - 6 Jan 2015