Highlights

• Meet up with management. We recently brought a group of 10 fund managers and buy side analysts to meet up with the management of Eversendai which was represented by Mr Sunthara Moorthy (Director of Corporate Affairs) and Mr Chew Yit Fan (Finance Manager).

• Orderbook still at the high side. We estimate Eversendai’s orderbook balance to stand at RM1.8bn as of end 2QFY15 (i.e. RM2bn balance as of end 1Q, less RM400m burn rate for 2Q and after adding RM250m worth of new job wins). This translates to 1.8x FY14 revenue, above its historical range of 1.1-1.6x for FY11-14.

• Record wins still on the cards. Management remains confident that FY15 will set a new record for job wins (YTD: RM1.1bn). Its previous high achieved in FY10 when it bagged RM1.7bn. Our assumption for FY15 is more conservative at RM1.4bn, of which 80% has been achieved. Potential contracts that are likely to materialise in 2H include jobs in Qatar (RM300m), India (RM300m) and smallish ones at RAPID. We also reckon that Eversendai will emerge as the top contender for the structural steel works of KL118 (estimated at RM350m).

• Riding on the strong US dollar. Yesterday, the USD hit a 17-year high against the ringgit, surpassing the 3.82 mark. Since late August last year, the USD has appreciated 21% against the ringgit. Eversendai is an outright beneficiary of this as 76% of its orderbook is located in the Middle East whose local currencies are pegged to the USD.

Risks

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

Forecasts

• Eversendai will release 2QFY15 results in late Aug. Based on management’s indications, revenue is expected to come in at slightly above RM400m, similar to 1Q. Based on this, we estimate that cumulative 1H core earnings will likely come in at RM38-41m (+221-246% YoY) or 59-64% of our full year forecast.
• While there is certainly a strong upside bias to our earnings, we leave our forecasts unchanged for now, pending the release of its actual numbers.

Rating

BUY TP: RM1.55 (+59% upside)

• Eversendai is in a sweet spot and offers investors a “triple threat” play of: (i) recovering earnings (3 year CAGR: 45%); (ii) surging job wins on top of a record high orderbook and; (iii) 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 - 28 Jul 2015