News

• Warehouse contract in Penang. Eversendai announced that it has been appointed as the main contractor by PKT Logistics Group to build warehouses worth RM120m in Batu Kawan, Penang.

• The 12 Waves. The warehouses, dubbed the 12 Waves will be part of the One Auto Hub which is expected to be one of the largest automotive logistics providers in Malaysia. The project will involve 12 warehouses in the shape of waves, rest area for truckers, office suite and covered solar parking. Work will begin in March 2015 and stretch to April 2016.

Comments

• Job wins flowing strongly. With this contract at hand, Eversendai’s YTD orderbook replenishment stands at RM349m. We estimate its orderbook to now stand at RM1.7bn, implying 1.8x cover on its historical revenue.

• More from One Auto Hub? The 12 Waves is only the first of three phases in the One Auto Hub project which is valued at RM700m. This means there is an additional RM580m worth of works up for grabs. Other domestic contracts that we expect Eversendai to participate in include structural steel works for Warisan Merdeka (potentially worth RM450- 600m) and RAPID.

• Beneficiary of stronger US$. The US dollar has strengthened 13% 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

• Lower 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 YTD job wins of RM349m are within our RM1.2bn orderbook replenishment assumption for FY15.

Rating

HOLD TP: RM0.57

• Share price has increased 24% 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 on 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 - 10 Feb 2015