Results

• Eversendai reported a stellar set of results for 1QFY15 with revenue at RM402.8m (+75% YoY, +31% QoQ) and core PATMI (ex. fair value loss on financial assets) of RM25.8m (+134% YoY, +40% QoQ).

Deviation

• 1Q core PATMI made up 44% of our full year forecast (45% of consensus). The deviations were due to significant growth in the topline, which we reckon, was partially due to favourable forex movements.

Dividends

• None declared. Usually in 2Q and 4Q.

Highlights

• Gaining from a stronger USD. During the quarter, 60% of Eversendai’s revenue came from the Middle East. These contracts are denominated in their respective local currencies which in turn, are pegged to the USD. On a YoY basis, the USD appreciated 9.8% against the ringgit which we believe, helped contribute to the strong results.

• Orderbook growing bigger. Eversendai’s orderbook currently stands at RM2bn, implying a 2x cover on FY14 revenue which is regarded to be rather strong considering the fast turnaround nature of its structural steel contracts.

• Aiming for the skies. At the end of 1Q, Eversendai’s job wins had already sored to RM864m (full year FY14: RM1.1bn). Management maintains its guidance that it is on track to bring new job wins to a record high. The previous all-time high for Eversendai’s job wins was in FY10 with RM1.7bn. If this is matched, it would imply that another RM800m worth of contracts could be forthcoming for the year. Our new job wins target, we believe, is conservative at RM1.3bn.

• Hiccups a thing of the past. We are also pleased to note that its O&G division is now healthily profitable, contributing 15% to revenue with PBT margin at 12.1%. Its jobs in India, which were previously loss making due to the issues of variation orders is now back to black (PBT margin: 13.6%).

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.

Forecasts

• Despite the strong results, we only raise our earnings by 5- 6% (on higher jobs wins) as we choose to embark on a more conservative stance in view of possible lumpy progress billings. We will further review our numbers post meeting with management.

Rating

BUY TP: RM1.06

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

Valuation

• Our SOP based TP is raised from RM0.98 to RM1.06 post earnings upgrade and marking to market its stake in Technics. This implies FY15-16 P/E of 13.4x and 9.5x.

Source: Hong Leong Investment Bank Research - 29 May 2015