SENDAI announced its winning of four new projects worth RM404m. We remain neutral on the wins as they fall within our FY18E replenishment target of RM1.5b. Maintain FY18E replenishment target of RM1.5b. No change to earnings estimates. Maintain UP with unchanged TP of RM0.665.

Acquired projects. Yesterday, SENDAI announced that it has won four new projects worth RM404m namely; (i) the construction of glass roof structures in Dubai, (ii) structural steel fabrication and construction package for a combined power plant project in Malaysia, (iii) the construction of a 45-storey high-rise residential tower in India, and (iv) the fabrication and assembly of leg sections for the Offshore Wind Installation Jack Up Vessel in Europe.

Neutral on wins. The new RM404m wins brought its YTD contract replenishment to RM1.12b. We remain neutral given that the value falls within our FY18E replenishment target of RM1.5b – accounting for 75% with another RM380m to be achieved. Assuming average PBT margin of 4% and a 36-month span for the contracts, the projects are expected to contribute c.RM4.0m to bottom-line per annum.

Outlook. Currently, SENDAI’s outstanding order-book stands at c.RM2.8b, providing visibility for the next 1-1.5 years. YTD contract wins accounted for 75% of our FY18E replenishment target. We believe SENDAI is on track to achieve the remaining RM380m. Hence, we maintain our FY18E replenishment target of RM1.5b. We note that SENDAI has received payment of USD36m for their first lift boat to VAHANA and we expect its net gearing to come off to c.0.80x (from 0.96x as of 2Q18).

Maintain earnings. We make no changes to our FY17-18E CNP.

Maintain UNDERPERFORM with an unchanged TP of RM0.665 based on a valuation of 8.0x FY19E PER, in line with our applied small- mid cap’s range of 7-12x. We pegged SENDAI towards the lower end of our valuation range given its: (i) extremely volatile earnings, and (ii) thin margins for its India as well as oil and gas operations.

Source: Kenanga Research - 27 Sep 2018