Period  4Q13/FY13

Actual vs. Expectations Eversendai’s FY13 core net profit of RM50.9m came in short of expectations, accounting for only 86% and 83% of our and consensus estimates, respectively. The negative variance was mainly due to: (i) timing issue of projects recognition and (ii) higher start-up costs incurred in its O&G and civil engineering divisions.

Dividends  Below expectations. A final single-tier dividend of 1 sen per share has been proposed vs. our earlier projections of 4 sen.

Key Results Highlights QoQ, 4Q13 net profit jumped by more than five folds to RM9.3m. The big jump in net profit was due to low base effect in which Eversendai only reported net profit of RM1.4m in 3Q13 dragged down by (i) gross losses of RM3.7m following downward revision of the budgeted profits of some projects and (ii) higher start-up costs derived from its O&G and civil engineering divisions.

 YoY, FY13 was a disappointing year for Eversendai as the Group’s net profit declined by 56% due to (i) lower revenue, (ii) downward revision in the budgeted profits of some projects in India and Qatar, (iii) start-up costs for the diversification for new business ventures into steel fabrication and petrochemical plant construction for the O&G industry.

Outlook  Eversendai updated that it has secured approximately RM669m new contracts in FY13. The current orderbook currently stands at approximately RM1.1b, which will last until 2016. A big chunk of its orderbook is from Middle East.

 While we acknowledge the management’s cautious view in industrial segments due to ever-increasing competition, we are still waiting for Eversendai’s diversification efforts into the O&G and civil construction sectors to start bearing fruits i.e. landing big contracts from the sectors. Recall, it has tendered for RM700m O&G jobs in the Middle East. It also tendered for few jobs in Petronas RAPID.

Change to Forecasts Conservatively, we cut our FY14 earnings forecast by 21% to reflect further higher operating costs. We also introduced our FY15 net profit with a growth estimate of 20% to RM103.4m.

Rating Maintain MARKET PERFORM

 We are maintaining MARKET PERFORM due to the stock’s lacks of fresh catalysts and limited potential upside.

 Nonetheless, we may revise our earnings estimates and potential upgrading the stock only if Eversendai could secure a higher level of contract sums than our assumptions.

Valuation  Post earnings revision, we revised lower our Target Price to RM0.99 (from RM1.26 previously). Our valuation is based on an unchanged target PER of 9x on the FY14EPS.

Risks to Our Call  Better progress in construction projects

 Lower building material costs.

 Secure O&G contracts in near-term.

Source: Kenanga