Highlights

• Hosts investor briefing. Yesterday, we attended Eversendai’s briefing post 2QFY16 results which was hosted by its MD, Tan Sri AK Nathan. To recap, 1HFY16 recorded core earnings of RM39m, up +57% YoY.

• Technics fully impaired. While 1H core earnings were positive, reported numbers indicated a loss of RM72m due to RM102m impairment for its 29.9% stake in Technics. Management guides that as of end 2Q, its entire stake in Technics has been fully impaired with no carrying value on its balance sheet. Cumulative impairments since FY13 have amounted to c.RM130m and management acknowledges that its investment in Technics was a bad decision. Trading of Technics is currently suspended on the SGX as it is currently placed under judicial management to try and salvage what’s left of the company.

• Liftboat concerns addressed. Eversendai is currently constructing 2 liftboats worth USD180m for its holding co, Vahana via an RPT. Completion on the 2 liftboats stands at 85% and 55% with deliveries scheduled for 1Q17 and 3Q17. Under the contract terms, a 20% upfront payment has already been made to Eversendai with the balance 80% upon delivery. The management of Vahana guides that it is in the midst of negotiating a JV agreement with some European parties to have the liftboats chartered out. Until this has been finalised, we remain concerned on the potential payment risk should its financing not materialise.

• Job wins towering in. On a brighter note, Eversendai has managed to amass RM1.5bn worth of new job wins YTD (FY15: RM1.7bn). Management is hopeful to hit the RM2bn mark in new job wins by year end as it has RM20bn worth of tenders (structural steel: RM9bn, O&G:RM11bn) in the pipeline. Its orderbook has now hit a new high of RM2.4bn, translating to a cover ratio of 1.4x on FY15 revenue.

Risks

• Payment risk on the 2 liftboats is our primary concern.

Forecasts

• While YTD job wins of RM1.5bn has matched our full year target, we are taking the cautious stance and keeping our earnings forecast unchanged. This is in view of Eversendai’s rather inconsistent earnings delivery from quarter to quarter.

Rating

• Maintain BUY, TP: RM0.66

• Despite lingering concerns on its liftboat contract, from a core earnings standpoint, its recovery appears to be panning out well. The stock also trades at an attractive P/E of 5.5x and 4.9x on FY16-17 earnings with current P/B at 0.36x.

• In our (rather extreme) worst case scenario whereby Eversendai has to write off the entire receivables on the liftboats, we estimate that it’s BV per share would fall from RM1.27 to RM0.53, still above its current share price.

Valuation

• TP of RM0.66 is unchanged based on 8x P/E (20% below its normalised mean) on FY16 earnings

Source: Hong Leong Investment Bank Research - 6 Sep 2016