Highlights

• Hosts investor’s briefing. Yesterday, we attended Eversendai’s briefing post 2QFY15 results. To recap, despite a strong 1Q which saw core earnings at RM25.8m, this slumped drastically to RM4.1m in 2Q.

• Better quarters ahead. Management indicated that the weak 2Q results was due to (i) suspension of works for the Worli project in India as the client faced approval issues from local authorities, resulting to RM8m in additional cost incurred and (ii) acceleration of works for the Tg Bin project in Malaysia costing RM6m in additional cost. In both cases, management guided that it will be claiming for additional cost incurred from the clients and these pressures should not persist into 2H15.

• Orderbook level still healthy. Eversendai’s orderbook currently stands at RM1.8bn, translat ing to 1.7x cover on FY14 revenue. This is still much higher than its historical range of 1.1-1.6x.

• Job wins to scale new highs. YTD job wins have totalled RM1.1bn for Eversendai, already matching the full year sum for FY14. Management is hopeful that FY15 will be a record year for job wins, even surpassing its previous record in FY10 at RM1.7bn. We were guided that there are a few sizable jobs that could be awarded very soon as they are in the final stages of approval from the client.

• Dollar strength to provide the boost. The USD recently breached the 4.3 mark against the ringgit, strengthening 23% YTD. On a YTD average basis, the USD appreciated 15% against the ringgit compared to the same period last year. Eversendai is a beneficiary of this as 73% of i ts orderbook comes from the Middle East whose local currencies are also pegged to the USD.

Risks

• Orderbook execution (particularly the Worli and Tg Bin projects) is the key risk to its earnings recovery prospects. Eversendai needs to better match its revenue and cost recognition to prevent wild swings in its earnings from quarter to quarter.

Forecasts

• Our FY15-17 earnings have already been cut by 11-18% following the dismal 2Q results. As the briefing yielded no surprises, we leave our projections unchanged.

Rating

BUY, TP: RM1.10

• Admittedly, the weak 2Q results have slowed down Eversendai’s earnings recovery process. However, this does not derail our investment case on the stock which is anchored by a healthy orderbook balance, surging job wins and strengthening USD.

Valuation

• Our SOP based TP remains unchanged at RM1.10 which ascribes a 20% discount. This implies FY15 P/E of 16.3x but a much more palatable 10.5x on FY16 earnings once its earnings recovery sets in.

Source: Hong Leong Investment Bank Research - 8 Sep 2015