Eversendai reported a net loss of RM64.4m in 9M16, which was within our expectation. Core earnings rose 20% yoy to RM47.8m in 9M16 on higher operating profitability, but fell 68% qoq to RM7m in 3Q16 due to lower revenue and EBITDA margin. Eversendai returned to black with net profit of RM7.3m in 3Q16 on the absence of fair value losses for its investment in 29.9%-owned Technics Oil & Gas (TOG) in 1H16. We maintain our BUY call and target price of RM0.67, based on an FY16E core PER of 8x.

In line with our expectation

Eversendai’s core net profit of RM47.8m was below the market expectation (69% of full-year consensus forecast of RM69.1m) but in line with our RM65.1m estimate (73% of our estimate). We expect better operating performance and a positive impact from the weaker Ringgit against the USD in 4Q16 (translation of foreign currency-denominated revenue that is mostly pegged to the USD), which has depreciated by 8% since 30 September 2016. We maintain our earnings forecasts.

Turn around in 3Q16 is insufficient to reverse earlier losses

Revenue eased 5% yoy to RM1.23bn in 9M16 due to the completion of some major projects, while new projects have not started to contribute significantly. EBITDA rose 28% yoy in 9M16 due to a sharper decline in cost (-7.6% yoy), improving the average EBITDA margin to 9.5% in 9M16 from 7% in 9M15. But Eversendai reported a net loss of RM64.4m, mainly due to a net exceptional loss of RM106.6m.

Record order book

Eversendai secured RM1.8bn worth of new contracts in 9M16 and this could exceed RM2bn by year-end. The order book of RM2.7bn as at 30 September 2016 is a record high. The order book breakdown by region is 39% Middle East, 25% ASEAN, 20% India and 15% Malaysia (oil & gas). We believe this should drive core EPS growth of 15% yoy in FY17.

Maintain BUY

We see good prospects for Eversendai to grow its order book in the Middle East, ASEAN and India. Maintain BUY. Key risks are project execution risks and its exposure to the oil and gas sector that is seeing a downturn.

Source: Affin Hwang Research - 2 Dec 2016