Period

1Q15

Actual vs. Expectations

1Q15 core net profit (CNP) of RM25.8m came in above expectations, accounting for 41% and 44% of our and consensus’ estimates, respectively.

The positive variance was mainly due to betterthan- expected construction work progress and margins. SENDAI delivered 6.4% core net margin, 1ppts higher than our forecast of 5.4%.

YTD, the group has secured RM864.0m new contracts, making up 57.6% of our full-year new contracts assumption of RM1.5b. We expect more contract flows in 2H15.

Dividends

None as expected.

Key Results Highlights

QoQ, 1Q15 CNP rose by 40.0% driven by: (i) higher profits in overseas operation (India) coupled with (ii) higher work progress from Malaysian operations, i.e. Tanjung Bin 4 and PKT Warehouse projects, and (iii) improved O&G profits. Core net margin improved by 0.4ppts to 6.4% thanks to higher margins from O&G and Malaysia segments.

YoY, both 1Q15 revenue and CNP rose by 75% and 76%, respectively, thanks to both India operations and O&G division. Both segments managed to return to the black after huge cost overruns (India) and start-up costs (O&G) in 1Q14.

Outlook

With this outperformance, SENDAI shown that it has delivered its promise to turn around by massive improvement in earnings via margins expansion as well as superior orderbook growth.

We understand that SENDAI’s outstanding orderbook currently stands at RM2.0b. Bulk of the orderbook came from the Middle Eastern region and the orderbook will last for the next two years.

As for jobs prospects, currently SENDAI has ~RM11.0b tenderbook which mostly are from the Middle Eastern Region.

Change to Forecasts

Raise our FY15-16E earnings by 19.0%-19.2% after adjusting for: (i) higher burn rate following better-than-expected construction progress, and (ii) slightly higher margins, i.e. 6.0% from 5.4% previously.

Rating

Maintain OUTPERFORM

Valuation

Revised higher our TP to RM1.08 (previously RM0.90), after: (i) earnings revision, (ii) rolling over our valuation basis to FY16E with unchanged ascribed PER of 11.0x. The target PER of 11.0x is within small-&-mid caps’ PER range of 10x-14x.

Risks to Our Call

Lower-than-expected margins

Lower-than-expected orderbook progress

Lower-than-expected new contracts

Forex fluctuation risks

Source: Kenanga Research - 29 May 2015