News

• Metro contract… Eversendai has been awarded a RM203m contract to construct the East, North & South depots of the Riyadh Metro Project, a rapid transit system in the capital of Saudi Arabia. The scope of works includes structural steel works, intumescent fire proofing and envelope cladding works which is scheduled for completion by Oct 2016.

• …and aircraft hangar. Aside that, Eversendai also secured a RM43m structural steel job for a conversion hangar in Riyadh which will be used for the servicing and maintenance of aircrafts.

Comments

• Strong momentum persists. With these 2 contracts in the bag, Eversendai’s YTD orderbook replenishment totals RM864m. We estimate its orderbook balance to now stand at RM2.3bn (before accounting for any burn rate in 1QFY15). This implies a healthy cover of 2.3x on FY14 revenue. During its investor’s briefing earlier this month, management shared that it is targeting for RM2bn in new job wins this year. Should this be achieved, it would surpass its previous high of RM1.7bn in FY10.

• Beneficiary of stronger US$. The US dollar has strengthened 18% 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 RM864m are within our RM1.2bn orderbook replenishment assumption for FY15.
• Nonetheless we reckon there could be upside to our estimates given the strong job wins recorded thus far in 1Q.

Rating

BUY TP: RM0.98

• 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 RM864m YTD. The strong US dollar is another added booster for earnings.

Valuation

• While there are no changes to our earnings forecasts, we raise our P/E target from 10x to 12x to reflect its strong influx of job wins. This bumps up our SOP based TP from RM0.83 to RM0.98, implying FY15-16 P/E of 13.1x and 9.2x respectively.

Source: Hong Leong Investment Bank Research - 17 Mar 2015