Results

• Eversendai reported 2QFY16 results with revenue of RM422m (-1% YoY, -4% QoQ) and core earnings of RM16m (+313% YoY, -30% QoQ).

• While headline numbers displayed a loss of -RM71m in 1H, this was due to exceptional items (EIs) such as -RM102m for its full impairment in Technics and -RM9m forex loss. Stripping these off, core earnings amounted to RM39m, up +57% YoY.

Deviation

• 1H core earnings made up 61% of our full year forecast (63% of consensus) which appears to be above expectations.

Dividends

• None declared. Usually in 4Q.

Highlights

• Slight O&G loss in 2Q. 2Q core earnings surged more than 3-folds YoY largely due to the exceptionally low base last year. On a QoQ basis, core earnings fell -30% due to the O&G division slipping into a small loss (<RM1m at the PBT level) vs a RM4m profit last quarter. Management indicates that this was due to slower billings on its 2 lift boat contracts due to delays in equipment deliveries.

• Narrow margins in India. PBT margins in India contracted QoQ from 13.2% to 1.4% which we reckon was due to the Worli Mixed Development project that has been suffering from delays as the client was faced with work halt orders.

• Doing well in its main market. For the 1H period, its main market in the Middle East enjoyed both topline growth of +19% YoY as well as margin recovery which almost doubled from 4.4% to 8.2%.

Risks

• Eversendai is undertaking 2 liftboat contracts worth USD180m via an RPT. The liftboats are currently 50-80% complete with a 20% upfront payment and 80% upon completion. As the liftboats have yet to secure any charters, there are concerns on its payment if its financing does not materialise.

Forecasts

• While the results were above expectations, we retain our forecast as we take a conservative stance given Eversendai’s patchy earnings track record in the past.

Rating

Maintain BUY, TP: RM0.66

• From a core earnings perspective, Eversendai’s recovery appears to be panning out well. The stock also trades at attractive valuations of (i) FY16-17 P/E of 5.3x and 4.7x respectively and (ii) current P/B of 0.35x.

Valuation

• Despite an unchanged forecast, we change our valuation method from SOP to an outright P/E multiple of 8x (20% below normalised mean) on FY16 earnings which cuts our TP from RM0.91 to RM0.66. We feel that the change in valuation and lower TP is appropriate given the write-off of its entire stake in Technics and perceived payment risk on its liftboats contract.

Source: Hong Leong Investment Bank Research - 30 Aug 2016