News

• Contract in Qatar. Eversendai announced that it has been awarded a RM269m job involving the construction of the Al Wahda Arches and Visitor’s Centre in Doha, Qatar.

• Another iconic job. The Al Whada Arches are the main segments of the artscape works which are part of the iconic Lusail Expressway Project (see # Figure 2). It will consist of 2 arches above the highway with a visitor’s centre suspended beneath it. Upon completion in June 2016, it will be one of the most popular landmarks in Qatar.

Comments

• Job wins going strong. With this contract at hand, Eversendai’s YTD orderbook replenishment amounts to RM618m. We estimate its orderbook to now stand at RM1.7bn, implying 1.7x cover on FY14 revenue. Looking ahead, Eversendai’s job flow prospects are underpinned by its RM12bn worth of tenders.

• Turnaround setting in. After 5 consecutive quarters of disappointing numbers, Eversendai’s 4QFY14 earnings are finally showing turnaround signs. Previous factors which caused a drag to earnings such as variation order (VOs) works and high start-up costs for its O&G division are now a thing of the past, we reckon.

• Beneficiary of stronger US$. The US dollar has strengthened 15% against the ringgit since late Aug 2014. Eversendai is a beneficiary of this as the bulk of its contracts come from the Middle East (more than 75% of its orderbook). Its contracts in the Middle East are denominated in their respective local currencies which in turn are pegged to the US dollar.

Risks

• Low oil prices would impact Eversendai in 2 ways. Firstly, oil majors would cut back on capex which reduces job flow potential to Eversendai’s newly set up O&G division. Secondly, it would impact the spending potential of oil dependent Middle Eastern nations, which is Eversendai’s main market for contracts.

Forecasts

• Unchanged as YTD job wins of RM618m are within our RM1.2bn orderbook replenishment assumption for FY15.

Rating

BUY TP: RM0.83

• With VOs and high start-up costs being a thing of the past, we now see more clarity in Eversendai’s earnings. Also supporting earnings are its strong RM1.1bn in new job wins last year and RM618m YTD. The strong US dollar is another added booster for earnings.

Valuation

• Our TP of RM0.83 is based on SOP method comprising (i) 10x FY15 earnings (ex. associates) and (ii) mark to market value of its 19% stake in SGX-listed Technics. This translates to FY15-16 P/E of 11.2x and 7.9x respectively.

Source: Hong Leong Investment Bank Research - 3 Mar 2015