Period  1Q14

Actual vs. Expectations Eversendai’s 1Q14 net profit of RM11m makes up only 13% and 11% of our full-year estimates and consensus. Nonetheless, we deem Eversendai’s result in line with our estimates as we expect the bulk of Eversendai’s full-year FY14 earnings to be delivered in 2H14.

Dividends  No dividend was declared in 1Q14.

Key Results Highlights QoQ, 1Q14 earnings rose by 18% thanks to better construction progress in Middle East, India and Malaysia. Amongst the projects that drive the earnings in 1Q14 are: Abu Dhabi International Airport in Doha, King Abdul Aziz International Airport Railway Station project in Saudi Arabia, Pearl Mansion project in Doha, Hub-Zero City project in Dubai, UAE, Worli Mixed Use Development project in Mumbai, India, Manjung 4 coalfired power plant project in Perak, Malaysia, and Tanjung Bin 4 coal-fired power plant in Johor, Malaysia.

 YoY, however, 1Q14 earnings declined by 52% mainly due to higher administration and operating expenses (+50% YoY) following higher start-up costs incurred from the new business, i.e. Oil & Gas.

 Going forward, we expect Eversendai’s earnings to deliver as per our estimates mainly in 2H14 driven by: (i) variation orders which are likely to be finalised in 2H14 and (ii) its strong outstanding order book of RM1.1b.

Outlook  We understand that the Group has reaffirmed its target to secure more than RM1.0b new contracts this year. So far, it has secured RM172m worth of contracts or 17.2% of our FY14 new contract assumption of RM1.0b.

 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 division, 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.

Change to Forecasts Maintained as we expect Eversendai to deliver most of its earnings in 2H14.

Rating MAINTAIN MARKET PERFORM

 We will revise our rating on the stock if and when (i) its O&G’s venture bears fruit by clinching significant O&G related contract, (ii) it secure new contracts more than what we have expected.

Valuation  Maintained our TP at RM1.18 based on an unchanged Fwd-PER of 9x on FY15 EPS.

Risks to Our Call Better progress in construction projects, Lower-than expected input costs, secure O&G contracts in near term.

Source: Kenanga