News

• Adding RM250m to its orderbook. Eversendai announced that has secured RM250m worth of new structural steel contracts in India, Malaysia and the UAE. In India, these include the Dhirumbai Ambani Convention and Exhibition Centre and a high end residential project in Mumbai. In the UAE, it secured contracts for a theme park and gas treatment platform. On the local front, Eversendai was awarded its maiden contract at RAPID as well as a plant extension project in Taiping.

Comments

• Job wins to hit a record high.. . With these contracts in hand, Eversendai’s new job wins have totalled RM1.1bn YTD. Backed by its outstanding tenderbook of RM23bn, management expects new job wins to surpass its previous high of RM1.7bn achieved in FY10. This implies that at least another RM554m worth of new job wins could be forthcoming for the remainder of the year. Our full year FY15 new job wins target is more conservative at RM1.4bn (80% of which has been achieved YTD).

• …on top of an already all-time high orderbook. We estimate that these new jobs bring its orderbook level to an all-time high RM2.2bn, translating to a cover ratio of 2.2x (another record high) vis-à-vis its historical range of 1.1-1.6x. This provides much clarity to Eversendai’s earnings visibility.

• Beneficiary of stronger US$. The US dollar has strengthened 20% against the ringgit since late Aug 2014. Eversendai is a beneficiary of this as 76% of its orderbook comes from the Middle East. Its contracts in the Middle East are denominated in their respective local currencies which in turn are pegged to the US dollar.

Risks

• Delay in orderbook execution is a key risk to its earnings recovery prospects.

Forecasts

• Unchanged as YTD job wins of RM1.1bn are within our RM1.4bn orderbook replenishment assumption for FY15. However, there is an upside bias to our estimates given the encouraging momentum of new job wins.
• Our forecasts are conservative to begin with as 1Q core earnings of RM26m have already fulfilled 41% of our full year forecast of RM64m.

Rating

BUY TP: RM1.55 (+74% upside)

• Eversendai is in a sweet spot and offers investors a “triple threat” play of: (i) recovering earnings (3 year CAGR: 45%); surging job wins on top of a record high orderbook and; proxy to the thematic strengthening US dollar play.

Valuation

• Our unchanged SOP based TP of RM1.55 implies FY15 P/E of 18.9x but a much more palatable 13x and 10.5x on FY16- 17 once the earnings recovery (or shall we say “growth”) gains further motion.

Source: Hong Leong Investment Bank Research - 30 Jun 2015