News  Eversendai announced that it has secured multiple steelstructural projects in Qatar and India which is worth RM152m. The steel-structural projects are: (i) the Gabbro Terminal Expansion project in the Mesaieed state, Qatar (RM78.7m), (ii) Skylight Steel Package 2 of the Mall of Qatar, Doha (RM16.3m), and (iii) J3 Project in Jamnagar, Gujarat, India (RM57.1m).

Comments  We are Positive on the projects as these multiple steelstructural jobs will boost its outstanding orderbook to RM1.7b (2-3 years visibility).

 Year-to-date, including these new contracts, the group has secured RM903.5m, making up 90% of our FY14 total orderbook replenishment assumption of RM1.0b.

 Assuming average net margin of 8%, these projects will contribute about RM12.2m per annum to their bottomline.

Outlook  It is commendable that Eversendai has secured a sizeable amount of contracts this year and has even exceeded our expectations as we did not expect the group to hit our replenishment rate so quickly. We view this positively as it signals the group’s commitment in delivering its promises to investors.

 We also reaffirm our view that Eversendai’s recently-secured O&G-related job, namely the RM580m liftboat contract, is a prelude of bigger things to come within this segment. In fact, the segment’s facilities, i.e. 200k sq mtr fabrication yard in

RAK Maritime City Zone, is almost completed and hence, greater capacity for more of such jobs in a foreseeable future.

 Elsewhere, the group is eyeing more steel structural jobs in the Middle East, particularly in Commonwealth Independent States (CIS) countries such as Azerbaijan. The group is also sanguine about Dubai hosting the World Expo in 2020 which will require construction of more convention centres and thus, opportunities for steel-structural market leaders such as Eversendai.

Forecast  No changes in earnings. Although the group has almost met our replenishment target for the year, we opt to be conservative and maintain our assumptions for now. We may revise earnings upwards if the group secures another substantial contract.

Rating Upgrade to OUTPERFORM (from MARKET PERFORM)

 The group has been making good progress in terms of meeting investors’ target. Previous earnings’ disappointments are likely priced in at current levels, implying limited downside risks. Additionally, the stock could surprise on the upside if it secures another substantial contract in FY14 which results in higher-than-expected order book replenishment compared to our assumption of RM1.0b, which is entirely believable considering that it has achieved 90% of our target within 6 months.

Valuation  Maintain our TP at RM1.18 based on unchanged fwd-PER of 9x on FY15 EPS. Our applied PER is on par with small-cap construction peers’ average PER of 8x-10x.

Risks to Our Call Higher-than-expected order book replenishment

 Lower-than-expected progress in construction projects

 Higher-than-expected input costs.

Source: Kenanga