Period  3Q13/9M13

Actual vs. Expectations Eversendai’s 9MFY13 net profit of RM41.6m came in way below expectations accounting for only 39% and 38% of our and consensus estimates, respectively. The negative variance was mainly due to: (i) unexpected gross loss of RM3.7m in India mainly on account of downward revision of budgeted profits of some projects in view of the yet to be finalised variation claims and (ii) higher start-up costs incurred in its O&G and civil engineering divisions.

Dividends  None

Key Results Highlights QoQ, 3Q13 revenue and net profit both declined by 2.7% and 92.2% respectively. The sluggish financial performance was mainly due to: (i) gross losses of RM3.7m following downward revision of the budgeted profits of some projects as a result of the yet to be finalised variation claims and (ii) higher start-up costs derived from its O&G and civil engineering divisions.

 YoY, 3Q13 net profit fell significantly by 92.2%, due to the high base effect from 3Q12, which included other incomes portion derived from higher finalization of accounts for a few projects in the Middle East region.

 YTD, 9M13 net profit also declined by 50% due to below-than-expected margins following the variation claims as well as higher operating costs.

Outlook  The current orderbook currently stands at approximately RM1.2b, which will last until 2016. A big chunk of its orderbook is from Middle East.

 We like the fact that Eversendai has taken efforts to diversify into the O&G and civil construction sectors to increase its revenue stream. It is proven that the Group has managed to clinch smallish O&G jobs in the Middle East region. Recall, it has tendered for RM700m O&G jobs in the Middle East.

Change to Forecasts We cut our FY13 earnings forecast by 44% to reflect higher-than-expected operating costs and the variation claims. We also cut FY14 earnings estimates by 17% as we take a conservative view that it might not finalise its variation claims until next year.

Rating Maintain MARKET PERFORM

 We are maintaining MARKET PERFORM due to the uninspiring results and general lack of fresh catalysts.

 Nonetheless, we may re-look to upgrade the stock if Eversendai could secure a higher level of contract sums than our assumption.

Valuation  Post earnings revisions, we revised lower our Target Price to RM1.26 (from RM1.52 previously). Our valuation is based on an unchanged target PER of 9x on the FY14EPS.

Risks to Our Call Delays in construction projects,

 Rising building material costs.

Source: Kenanga