Results

• Eversendai posted 3QFY17 results with revenue of RM449.3m (-4% QoQ, +21% YoY) and core earnings of RM18.4m (+16% QoQ, +367% YoY).

• Cumulative 9M core earnings came in at RM49.4m, increasing 15% YoY. In deriving core earnings we have removed the impact of forex and impairment on Technics (recorded last year).

Deviation

• 9M earnings were above our expectations at 91% of our full year forecast (consensus: 81%). The positive results surprise largely stemmed from higher than expected margins.

Dividends

• None declared.

Highlights

• Mostly in the black but... Following its core loss of RM68m in FY16 (largely due to losses incurred in 4Q), Eversendai managed to remain profitable in 9MFY17. Its main market in the Middle East (57% of 9M revenue) was profitable but the Malaysian operations experienced a quarterly loss in 3Q.

• …O&G in the red. The O&G segment (which is mainly building 2 liftboats) experienced a loss of RM3.6m for the 9M period. This division has been in the red in 5 of the past 6 quarters. Delivery of the 2 liftboats is expected sometime in 1Q18 and 3Q18 respectively.

• Job wins coming in. YTD job wins have been strong at RM1.6bn (FY16: RM1.7bn), bringing its orderbook to a near high of RM2.7bn. This implies a cover of 1.7x on FY16 revenue which is rather high considering the fast turnaround nature of its jobs.

• Out of Shariah list. Eversendai’s Shariah status has been removed by the Securities Commission during the recent Nov review. This was due to its conventional debt over assets being at 39%, exceeding the 33% threshold. The stock has lost its Shariah status twice on the past 3 years.

Risks

• While job wins have been strong, execution remains a key risk to watch out for.

Forecasts

• Our previous forecast is unchanged as we are ceasing coverage on the stock.

Rating

NOT RATED, Ceasing of coverage

• We are ceasing coverage on Eversendai given the lack of institutional investor interest and its recent removal from the Shariah list.

Valuation

• Our previous TP of RM1.01 was based on 12x P/E applied to FY18 earnings.

Source: Hong Leong Investment Bank Research - 28 Nov 2017