News  SENDAI announced yesterday that it has secured a contract worth RM120m from PKT Logistics Group. The contract is scheduled to begin in March 2015 and completed by April 2016.

 The job scope is to construct PKT Logistics’ 4th generation warehouse; dubbed the 12 Waves which will be a part of One Auto Hub in Batu Kawan, Penang.

Comments  We are NEUTRAL on the news as the amount of contract is within our FY15E replenishment orderbook assumption.

 Assuming 6% net margin, this job would contribute about RM5.4m in FY15 or 9.9% of our FY15E net profit forecast of RM54.6m. SENDAI’s YTD new wins now stand at RM348m, accounting for 34.8% of our total jobs assumption of RM1.0b.

Outlook  We estimate that including this contract, Eversendai’s outstanding orderbook has increased to RM1.7b with the bulk of it still 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 a few rounds of earnings disappointments. In addition, we are also concerned on the fact that the O&G industry is facing challenging times now with the volatility in world’s oil prices.

Forecast  Unchanged.

Rating  Maintain UNDERPERFORM Valuation

 Despite its growing orderbook, we remain concerned over the group’s continuous earnings disappointments which could persist in coming quarters. We prefer to see 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 at the lower-end of 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