News

• Contract win in India. Eversendai announced that it has been awarded a RM184m structural steel contract by Reliance Industries Ltd for the Dhirubai Ambani International Convention and Exhibition Centre (DAICEC) in Mumbai. The project is estimated to be completed by April 2016.

Comments

• Starting the year well. With this contract in the bag, Eversendai’s YTD orderbook replenishment would stand at RM228m. We estimate its orderbook to stand at RM1.5bn, implying 1.6x FY13’s construction revenue.

• More domestic jobs to flow. Apart from its usual structural steel jobs in the Middle East, Eversendai is also looking at some domestic projects which include Warisan Merdeka and RAPID.

• Beneficiary of stronger US$. The US dollar has strengthened 15% against the ringgit since Aug 2014. Eversendai is a beneficiary of this as the bulk of its contracts come from the Middle East (for 9M14, Middle East contributed 63% to revenue). Its contracts in the Middle East are denominated in their respective local currencies which in turn are pegged to the US dollar.

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 in it having to recognise additional costs with no offsetting revenue as the accounts have not been finalised.

Forecasts

• Unchanged as YTD job wins are within our RM1.2bn orderbook replenishment assumption for FY15.

Rating

HOLD TP: RM0.57

• Share price has increased 21% since mid-Jan which we believe is largely due to investors banking on Eversendai as a beneficiary of a stronger US dollar.
• However, we remain concern about Eversendai due to falling oil price and continued VOs as explained above.

Valuation

• Valuation unchanged based on a 20% discount to SOP to derive a TP of RM0.57. This implies FY14 PE of 20x but a much more palatable 9.1x on FY15 once earnings recover.

Source: Hong Leong Investment Bank Research - 27 Jan 2015