News  Eversendai has secured contracts for the construction of 2 units of GustoMSC NG-2500X liftboats at a combined value of RM580m from a related-party company, Vahana Offshore (S) Pte. Ltd (Vahana).

 The contracts are for the engineering, procurement, construction and delivery of 2 units of fully equipped liftboats, Aryan and Arjun, in February and May 2016, respectively. Both units will be executed at Eversendai Offshore’s fabrication yard on a waterfront land measuring approximately 200k sq m with 550 m of quayside in RAK Maritime City, Ras Al Khaimah in the United Arab Emirates.

Comments  Although it is a related party transaction, we view the announcement positively as: (i) the contract could provide good profits; assuming 10% net margin, the project would contribute RM29m per annum to the Group’s bottomline until 2016, (ii) this maiden project will eventually provide another stream of income i.e. marine and shipbuilding to Eversendai in a foreseeable future, (iii) including this contract, the Group has secured RM752m worth of jobs YTD against our forecast of RM1.0b new contracts assumption in FY14.

Outlook  This contract could be a prelude to more O&G-related contract flows for the Group in the foreseeable future. This project will build up Eversendai’s track record in this new sector.

 Elsewhere, 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.

Forecast  We are leaving our forecast unchanged pending more clarification from management in today’s Analyst Briefing.

Rating Maintain MARKET PERFORM

 Maintain MARKET PERFORM rating on Eversendai at this juncture pending more clarification from today’s Analyst briefing.

Valuation  Maintain our TP at RM1.18 based on 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