News  Eversendai announced that it has secured a string of contracts for structural steel projects with a total worth estimated at RM172.2m from the Middle East and India. Amongst the steel structures (i.e. design, supply, fabrication and erection of steel) projects awarded are: (i) complex on Dana Island and Lusail City Development in Doha, Qatar, (ii) facility for the International Airport in Jeddah, Kingdom of Saudi Arabia, (iii) entertainment centre and architectural landmark in Dubai, (iv) grand mosque in Al Ain, Abu Dhabi, and (v) a sky bridge in Kolkata, India. These projects are expected to complete by end-2014 – 2015.

Comments  While we were not entirely surprised with the news as the amount of contracts falls within our assumed orderbook of RM1.0b this year, these contracts will boost its orderbook by +18% to RM1.3b from RM1.1b previously which will last for at least the next 2 years.

 Assuming a 12% pre-tax margin, these contracts will contribute RM10m per annum to bottom line.

Outlook  Based on our recent conversation with the management recently, the Group reaffirmed that it will secure more than RM1.0b new contracts this year.

 Eversendai is eyeing more steel structural jobs in the Middle East, particularly in Commonwealth Independent States (CIS) countries such as Azerbaijan. It has already secured one project in the country last year (a 41-storey office tower in Crescent City project). Other than that, Eversendai is sanguine about Dubai hosting the World Expo in 2020. There will be more convention centres to be built there and hence opportunities for steel-structural market leaders such as Eversendai.

 As for its O&G segment, we have yet to see significant O&G contract flows for the Group. Nonetheless, the management remains hopeful to secure some contracts from the sector in the Middle East and Petronas’ RAPID projects.

Forecast  Relatively unchanged.

Rating Maintain MARKET PERFORM

 We are maintaining our MARKET PERFORM rating on Eversendai at this juncture due to the stock’s limited upside.

 Nonetheless, we may consider upgrading the stock if Eversendai could secure a higher level of contract sums than our assumptions.

Valuation  Revised to RM1.18 from RM0.99 as we roll-over our valuation benchmark to FY15 based on unchanged fwd-PER of 9x.

Risks to Our Call Better progress in construction projects

 Lower-than-expected input costs.

 Secure O&G contracts in near-term

Source: Kenanga