News  SENDAI announced yesterday that it has secured a new contract worth RM269.2m in Qatar for the construction of the Al Wahda Arches and Visitors’ Centre in Doha, Qatar.  This project is targeted to complete by June 2016.

Comments  We are NEUTRAL to POSITIVE on the news as the group’s job flows pace is faster than our expectation. YTD, in less than three months, the group has already secured RM618m worth of new contracts, making up 61.8% of our total FY15 new contracts assumption of RM1.0b.

 Assuming net margin of 6%, we estimate this contract will contribute about RM16.2m (2.1 sen EPS) in FY15-16E earnings.

Outlook  We estimate by now, SENDAI’s outstanding orderbook stands at RM1.8b from RM1.4b in end-2014. Bulk of the orderbook came from the Middle Eastern region. The orderbook will last for the next two years.

 While we noted the margins improvement in its recent 4Q14 results, we prefer to see the group sustaining earnings delivery in the upcoming quarters.

 In addition, we remain concerned on the fact that the O&G industry is facing challenging times with the volatility in world’s oil prices.

Forecast  Unchanged pending the upcoming analysts’ briefing on Thursday, 5th March 2015.

Rating  UNDER REVIEW

Valuation  Despite the job flows momentum coupled with vast earnings improvement in recent 4Q14, we prefer to see more consistent earnings delivery in coming quarters before we review our CALL/TPs. However, we note that the group has been getting strong orderbook replenishments, which may exceed our assumptions of RM1.0b for FY15.

 Our recommendation is now under review, pending the analysts’ briefing. Our previous call is UNDERPERFORM and TP of RM0.60 based on FY15E 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