Results

• Eversendai’s 2QFY15 results came in with revenue of RM425.2m (+91% YoY, +6% QoQ) and core earnings of RM4.1m (+423% YoY, -84% QoQ).

• Cumulative 1H core earnings of RM29.9m were up 545% YoY given the low base in FY14.

Deviation

• 1H core earnings made up 45% of our full year estimates (47% of consensus) which we deem to be slightly below expectations.

• The lower than expected results was due to the Worli project in India which was temporarily halted as the client faced approval issues from the authorities. We gather that this resulted to RM8m additional cost incurred during the quarter with no offsetting revenue.

• Another issue stemmed from the Tg Bin project in which accelerated works was requested by the client. This resulted to additional costs of RM6m incurred in the quarter.

• Management guided that for both the Worli and Tg Bin projects, it will claim for the additional costs incurred, although the timing of its approvals is uncertain. Had it not been for these two projects, earnings would’ve been inline.

Dividends

• 1.25 sen dividend was declared.

Highlights

• Aiming for record job wins. YTD job wins have amounted to RM1.1bn (hitting 80% of our full year target). Management is hopeful of beating its previous high of RM1.7bn achieved in FY10. We gather that another RM200m worth of jobs could be forthcoming by end 3Q.

• Still a USD play. Over 70% of Eversendai’s orderbook is located in the Middle East whose local currencies are pegged to the USD. As such, Eversendai is a beneficiary of the strengthen USD which has appreciated over 30% in the past 12 months.

Risks

• Continuation of high cost coming from the Worli and Tg Bin projects.

Forecasts

• We cut FY15-17 earnings by 18%, 13% and 11% respectively after we impute the higher costs incurred.

Rating

BUY TP: RM1.10

• While we admit that the results were a disappointment, our key investment themes behind Eversendai remains intact. Its orderbook of RM1.8bn is close to its all-time high and job wins continue to flow. Furthermore, it is a beneficiary of the strengthening USD.

Valuation

• Apart from our earnings cut, we also apply a 20% discount to our SOP valuation and reduce our TP from RM1.55 to RM1.10. This implies FY15 P/E of 16.3x but a more palatable 10.5x for FY16 once earnings stage a recovery.

Source: Hong Leong Investment Bank Research - 25 Aug 2015