SENDAI announced that its group of companies in Singapore, Qatar and India has secured new contracts worth RM321m. Neutral on the wins. No change to FY18-19E earnings estimates. Maintain UNDERPERFORM with an unchanged TP of RM0.505 based on an unchanged valuation of 7.0x FY19E PER.

New Wins. Yesterday, SENDAI announced that its group of companies have secured new contracts worth RM321m in Singapore, Qatar and India. In Singapore, it secured a 26-storey commercial building project while in Qatar, it won an army base camp project. In India, it secured three jobs, namely (i) a 49-storey tower project, (ii) a 41-storey commercial tower project, and (iii) a railway bridge project.

Neutral on wins. The new contract wins of RM321m would be SENDAI’s fifth win for the year, bringing its YTD replenishment to RM1.44b. While its replenishment for the year has exceeded our assumption of RM1.2b, we remain neutral on the wins as: (i) it adds to our replenishment FY19 assumptions of RM1.3b, making up 19% of our replenishment target, and (ii) we expect works to commence in 2019 given that there are only 2 working days left before 2018 comes to an end. Assuming an average PBT margin of 4% and a 36-month span for the contracts, the projects are expected to contribute c.RM3.1m per annum to the bottom-line.

Outlook. Currently, SENDAI’s outstanding order-book stands at c.RM2.43b, providing visibility for the next 1-1.5 years. We also note that it has received payment of USD36m for their first lift boat to VAHANA in 2Q18. We believe that it will not be long before SENDAI receives its remaining payment of USD54m and we expect its net gearing to come off to c.0.81x (from 1.06x as of 3Q18).

No changes to earnings. We make no changes to our FY18-19E CNP as the contract wins forms part of our order-book replenishment assumptions.

Maintain UNDERPERFORM with an unchanged TP of RM0.505 based on an unchanged valuation of 7.0x FY19E PER, in line with our applied small-mid cap’s range of 6-11x. 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.

Upside risks to our call include: (i) higher-than expected order-book replenishment, and (ii) better-than-expected margins

Source: Kenanga Research - 27 Dec 2018