Yesterday, SENDAI announced that they had secured new contracts of over RM557.6m since April-17; bringing YTD contracts won to RM1.3b. We remain NEUTRAL on these wins as they still remain within our FY17E replenishment target of RM1.8b. Post award, we maintain our FY17-18E earnings forecast. Reiterate UP with a higher TP of RM0.49 (from RM0.42) after rolling forward our valuation base year to FY18 on unchanged 9.0x PER.

New Contracts from India and Middle East. Yesterday, SENDAI announced that they had secured new contracts of over RM557.6m since April-17, bringing YTD contracts won to RM1.3b. These new contracts worth 557.6m are split between India (64%) and Middle East (36%). These projects comprise of residential developments, office buildings, a start-up incubator complex, a museum and a metro station.

NEUTRAL on wins. We remain NEUTRAL on these wins (RM1.3b YTD) as they still remain within our FY17E replenishment target of RM1.8b; making up 72% of our target with a remainder of RM0.5b to be achieved. Assuming a 36-month span for the contracts coupled with PBT margins of 3% for India and 6% for Middle East; the projects are expected to contribute c.RM5.7m to bottom line per annum.

Company outlook. Post contract wins, SENDAI’s outstanding order-book stood at c.RM3.2b providing visibility for the next 2 years. We note that we have taken a more conservative stance and assume a replenishment target of RM1.8b in FY17 vs. management’s target of RM2.5b. On a separate note, SENDAI’s first lift boat (85% completed) is scheduled for delivery in July 2017 and the second one (55% completed) is scheduled for delivery in FY18. While we understand that the client - VAHANA Holdings - has obtained financing for the first lift boat, we remain cautious on the second lift boat in case it failed to secure financing, potentially raising the risk of impairments.

Maintaining earnings. We maintain our FY17-18E earnings of RM36.4m and RM41.8m post contract awards.

Maintain UNDERPERFORM with higher TP of RM0.49. YTD, SENDAI’s share price has increased 51% and is currently trading at FY18E PER of 16.5x - which is deemed steep. Hence, we reiterate our UP call even with a higher TP of RM0.49 (from RM0.42) after rolling forward our valuation base year to FY18 on an unchanged 9.0x PER. While our valuation at 9.0x PER for SENDAI is at the lower end of our targeted small-to-mid cap peers’ range of 9-13x, we believe it is fair given that (i) SENDAI’s historical earnings have been volatile with impairments of receivables due to payment collection issues, (ii) the potential risk of impairments from the lift boats scheduled for delivery in FY18 and (iii) their existing high gearing of 0.90x (as of FY16) vs peers’ average of 0.10x.

Source: Kenanga Research - 17 May 2017