News

• Proposes private placement. Eversendai has proposed to undertake a private placement of up to 77.4m new shares (10% of share capital). The indicative price of the placement RM0.98/share, representing a 9.3% discount to its 5-day VWAP. It has also entered into a conditional share subscription agreement with Macquarie Bank to take the placement shares. The placement exercise is expected to be completed in 1Q18.

Comments

• Largely to pare down debt. The placement exercise is expected to raise RM75.8m, of which RM70m will be used to repay short term borrowings.
• Net gearing reduced but still high. Eversendai’s net gearing currently stands at 100% (1QFY17). This high net gearing is largely attributed to reduction in shareholder’s equity in FY16 due to write offs (investment in Technics and bad debts) as well as core loss. Apart from that, borrowings were also on the rise in FY16 to help fund its 2 liftboats contract in which 80% of its payment will only take place upon completion. We estimate that the placement will help to ease proforma net gearing to 84%.

Risks

• Payment risk on the 2nd liftboat is our primary concern.

Forecasts

• Unchanged for now. As an indication, our FY18-19 EPS forecast would be diluted by 9.1% from the placement exercise. ??????

Rating

Maintain SELL, TP: RM0.85

• We feel that investors are pricing in too much of an earnings recovery (from a loss in FY16) without taking into account the risk associated with its erratic earnings delivery.
• 2QFY17 results are due to be released on 28 Aug.

Valuation

• TP of RM0.85 is based on 12x P/E target applied to mid- FY18 earnings.

Source: Hong Leong Investment Bank Research - 16 Aug 2017