News  SENDAI announced yesterday that it secured a contract worth RM184m from Reliance Industries Ltd of India. The job scope includes supply of steel materials, connection design, engineering and fabrication for the construction of the Dhirubhai Ambani International Convention and Exhibition Centre (DAICEC) in Mumbai, India.  According to the management, the contract is expected to complete in April 2016.

Comments  We are NEUTRAL on the news as this job is part of our FY15 jobs replenishment assumption. This job is only one of the packages that SENDAI has bid for DAICEC project. We believe the Group could also participate in other packages in the project such as steel erection, which potentially worth more than RM50.0m.  Assuming 6% net margin, this job would contribute about RM8.3m in FY15 or 15% of our FY15E net profit forecast of RM54.6m.

 SENDAI’s YTD new wins now stand at RM228m, accounting for 22.8% of our total jobs assumption of RM1.0b.

Outlook  Eversendai updated that its orderbook currently stands at RM1.6b and a bulk of it coming from Middle East.

 Despite the group’s huge orderbook, we are cautious on the group’s earnings outlook in the near term after seeing few rounds of earnings disappointment. In addition, we are also concerned on the fact that O&G industry is facing challenging times now with the volatility in world’s oil prices.

Forecast  Unchanged.

Rating  Maintain UNDER PERFORM Valuation

 Despite its growing orderbook, we remain concern on the group’s earnings disappointment. This could persist in the next quarters. We prefer to see the Group demonstrate more consistent earnings delivery before we review our CALL/TPs.

 All in, we maintain our TP of RM0.60 based on unchanged FY15 PER of 8.5x. Our applied PER is within the small-cap construction peers’ PER range of 8x-10x.

Risks to Our Call  Higher-than-expected margins.

 Higher-than-expected orderbook progress.

 Higher-than-expected new contracts 

Source: Kenanga