News

SENDAI announced that it has secured several new projects worth a total of RM316m in Qatar, India and Malaysia. SENDAI also announced their appointment as the main contractor for a glove manufacturing factory located in Klang, which is expected to be completed by July 2016.

The new contracts from Qatar and India involve structural steel roof construction of a theme park at Doha Oasis Mixed Development and structural steel works of the Statue of Unity in Gujarat, respectively. In Malaysia, they managed to secure three contracts from two separate packages at RAPID, which includes the fabrication and supply of structural steel for a refinery while the other two involves contract works in regards to the Steam Cracker Complex (SCC).

The Doha project and India project are to be completed by June 2017 and July 2017, respectively. Domestically, the RAPID packages secured are expected to be completed by September 2016 while the other two contracts for Steam Cracker Complex are scheduled to be completed by December 2016 and August 2018.

Comments

We are neutral on the job flows amounting to RM316m as with these jobs, SENDAI has just managed secure RM1.5b worth of contracts replenishments for the year which is still within our FY15E orderbook replenishment target of RM1.5b.

Assuming 5% PATAMI margin (in line with our assumption), these contracts would contribute about RM15.8m to SENDAI’s PATAMI, which will be spread over two years.

Outlook

SENDAI has 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 estimate SENDAI’s current outstanding orderbook stands at about RM2.0b, of which the bulk is from the Middle East. Note that this is their record-high outstanding orderbook providing earnings visibility for the next two years.

In terms of future jobs prospects, currently SENDAI has approximately RM17.0b tenderbook, with almost 65% coming from the Middle Eastern region, and we expect more contract flows in the near-to-midterm.

Forecast

Unchanged as the contract value came in within our estimates.

Rating

Maintain OUTPERFORM

Valuation

Maintain TP of RM0.99. Our TP implies FY16E PER of 11.0x, which is in line with our target small-mid caps’ PER range of 9x-13x. Despite being valued at the higher range, we believe such valuations are justified as we expect SENDAI to maintain its higher earnings base from FY15 onwards, given the recovery in orderbook and normalisation of margins compared to previous years.

Risks to Our Call

Lower-than-expected margins

Lower-than-expected orderbook progress

Lower-than-expected new contracts

Forex fluctuation risks

Source: Kenanga Research - 24 Nov 2015