Results

• 4QFY14 results posted revenue of RM309m (+29% YoY, +28% QoQ) and core PATMI of RM18m (+68% YoY, +379% QoQ).

• Full year FY14 core PATMI summed to RM34m (-35% YoY).

Deviation

• FY14 core PATMI trumped our estimates by 53% and consensus by 23%. The significantly stronger than expected results was due to a sharp rebound in 4Q earnings, fuelled by: (i) the absence of variation orders (VOs); and (ii) profitable contributions from its O&G contracts. We had earlier projected weak 4Q earnings in view of continued VOs and high start-up costs for its O&G contracts.

Dividends

• Final DPS of 1.25 sen was declared, bringing total dividends for FY14 to 2.25 sen (FY13: 2 sen).

Highlights

• Turnaround sets in. Eversendai’s contracts in India finally recorded a profit after 5 consecutive quarters of losses due to VOs. This signals that VOs are now a thing of the past. Its O&G division which previously suffered from high start-up costs is also now profitable, suggesting that it has moved past the “growing pains” stage.

• Strong job wins. Eversendai recorded strong job wins of RM1.1bn in FY14 (FY13: RM669m). The momentum appears to be continuing into FY15 as well with RM348m secured YTD. Overall, its orderbook currently stands at RM1.4bn, implying a decent cover of 1.4x FY14 revenue.

• Beneficiary of stronger US$. The US$ has strengthened 14% against the ringgit since late Aug 2014. We view Eversendai as a beneficiary of this given that 75% of its orderbook comes from the Middle East, in which contracts are denominated in their respective local currencies. These local currencies in the Middle East are in turn, pegged to the US$.

Risks

• Execution of its O&G contracts, a division in which Eversendai has recently ventured into. However, the recent results show that this division is finally profitable and previously incurred high start-up cost is a thing of the past.

Forecasts

• With clarity that its Indian jobs are no longer plagued by VOs and its O&G division passed the high start-up cost stage, we see earnings catalyst now insight. We raise FY15-16 earnings by 19% and 7% as we project margins to recover.

Rating

BUY, TP: RM0.83

• We are turning positive on the outlook for Eversendai given: (i) earnings turnaround now coming into play; and (ii) job wins gaining traction. Upgrade to BUY.

Valuation

• Apart from our earnings upgrade, we also remove our 20% SOP discount as risks from VOs and high start-up costs have abated. All in all, our SOP based TP is raised from RM0.57 to RM0.83.

Source: Hong Leong Investment Bank Research - 27 Feb 2015