News  Eversendai yesterday announced that it has secured the Khalifa Olympic Stadium contract worth RM113.0m in Qatar. Job scope comprises re-engineering and dismantling of the existing lighting arch and ancillary steel structures, engineering, supply, fabrication and construction of steel structures.

Comments  Positive on the job wins as this contract will boost its outstanding orderbook to RM1.7b (2-3 years visibility).

 Year-to-date, according to the management, the group has secured RM1.1b new contracts, beating our FY14 total orderbook replenishment assumption of RM1.0b.

 Assuming average net margin of 8% and two years to completion, this project will contribute about RM4.52m per annum to their bottomline.

Outlook  It is commendable that Eversendai has secured a sizeable amount of contracts this year which even exceeded our expectations; we did not expect the group to hit our replenishment target 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 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, will provide greater capacity for more of such jobs in the foreseeable future.

 Elsewhere, the group is eyeing more steel structural jobs in the Middle East, namely Azerbaijan and Qatar. 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 steelstructural market leaders such as Eversendai.

Forecast  Although the group has exceeded our replenishment target for the year of RM1.0b, we opt to be conservative and maintain our assumptions for now. We may revise earnings upwards if the group secures another substantial contract.

Rating Maintain OUTPERFORM

The group has been making good progress in terms of meeting investors’ target. Earnings’ disappointments are likely to be already 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 even higher-thanexpected order book replenishment compared to our assumption of RM1.0b.

Valuation  Maintain TP of RM1.18 based on unchanged PER of 9x FY15 EPS, in line with small-cap peers average of 8-10x

Risks to Our Call Lower-than-expected progress in construction projects

 Higher-than-expected input costs.

Source: Kenanga