FY18 CNP of RM62.9m came within our, but below consensus estimate (at 105%/94%), negative variance due to slower construction billings and higher finance cost. The absence of dividend was expected. No changes to FY19E earnings and introduce FY20E earnings of RM54.9m based on FY20E replenishment target of RM1.6b. Maintain UNDERPERFORM with a lower Target Price of RM0.490 (previously RM0.505) on 7.0x FY20E PER.

Within our but below market expectations. FY18 CNP of RM62.9m came within our, but below consensus, estimates (at 105%/94%). We believe that the negative variance could be due to higher-than-expected finance cost and slower construction billings from Middle-East, India and South-East Asia. Note that we derived our CNP after stripping out reversal of losses of RM7.0m. No dividend was declared, as expected.

Results highlight. YoY, FY18 CNP declined 8% on the back of a 7% decline in revenue, which we believe is attributed to delay in construction progresses mainly from projects in the Middle-East region which contributes the lion’s share (57%) of the group’s revenue. Pre-tax margin saw compression (-0.7ppt) to 4.5% primarily due to higher finance cost incurred. QoQ, 4Q18 revenue improved 14% as progress billings from its projects in Middle-East, India and South-East Asia improved, albeit slower progress billings were seen in its Oil & Gas operation. However, CNP fell 10% despite the 14% increase in revenue stemming from: (i) higher financing cost, and (ii) higher tax expense vs. (positive tax in 3Q18).

Outlook. YTD, SENDAI has secured RM406m worth of jobs making up 25% of our FY19E targeted replenishment of RM1.6b. We anticipate additional contracts, likely from Qatar and Singapore, which should set SENDAI on track to meet our targeted replenishment. Its outstanding order-book stands at c.RM2.5b, providing visibility for the next 1-1.5 years. We continue to anticipate the remaining payment of USD54m for its first lift boat to VAHANA, which should bring net gearing down to c.0.82x (from 1.06x as at 4Q18).

No changes to FY19E. Post results, we made no changes to our FY19E CNP of RM56.1m. Meanwhile, we introduce FY20E CNP of RM54.9m based on FY20E replenishment target of RM1.6b.

Maintain UNDERPERFORM with a lower Target Price of RM0.490 (previously RM0.505) based on 7.0x FY20E PER. We are pegging SENDAI to the lower end of our valuation range (6x-11x) given its: (i) extremely volatile earnings, and (ii) thin margins for its India and Oil & Gas operations.

Upside risks include: (i) higher-than expected replenishment, and (iii) better-than-expected margins.

Source: Kenanga Research - 01 Mar 2019