Results

• Eversendai’s 3QFY15 results came in with revenue of RM471.5m (+96% YoY, +11% QoQ) and core earnings of RM5.7m (+209% YoY, +47% QoQ).

• Cumulative 9M core earnings of RM30.6m were up 32% YoY. Note that our derivation of core earnings removes unrealised forex gains (RM18.6m) and fair value loss on shares of Technics (-RM1m).

Deviation

• 9M core earnings made up only 47% of our full year estimate (59% of consensus) which is below expectations.

• The weak results were due to is Indian operations which were in the red (9M PBT margin: -5.4%). This was due to the Worli project being halted as the client faced approval issues from authorities.

• The Malaysian operations were also weak, barely breaking even for the 2nd consecutive quarter due to accelerated works at Tg Bin which resulted to additional costs.

• In both cases, management guides that it will claim for the additional costs incurred. Timing is however, the uncertain factor.

Dividends

• None. Usually declared in 4th quarter.

Highlights

• Job wins have been strong. YTD job wins have amounted to RM1.4bn (hitting 100% of our full year target). Management is hopeful of beating its previous high of RM1.7bn achieved in FY10. Potential job wins could come from its usual “bread and butter” structural steel works in the Middle East, RAPID and Warisan Merdeka.

• Riding on the strong USD. Over 75% of Eversendai’s orderbook is located in the Middle East whose local currencies are pegged to the USD. YTD average USD-MYR exchange rate has appreciated 18% YoY, which should benefit Eversendai.

Risks

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

Forecasts

• We cut FY15-17 earnings by 19%, 4% and 10% respectively after we impute the higher costs incurred, which is slightly offset by higher job wins target (RM1.4bn to RM1.6bn).

Rating

BUY TP: RM1.06

• While the results were a disappointment, our key investment themes behind Eversendai is 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

• Following our earnings cut, our SOP based TP is reduced from RM1.10 to RM1.06 at an unchanged 20% discount. This implies an expensive P/E of 19.4x for FY15 but reduces to 10.5x for FY16 once earnings recover.

Source: Hong Leong Investment Bank Research - 1 Dec 2015