We  are  ceasing  coverage  on  Eversendai.  With  significant  Middle  East exposure,  its  earnings  risk  has  risen  with  the  collapse  of  oil  prices. While it is a globally competitive contractor, it needs to more effectively monetise its strengths. It  also  has been struggling to  recover variation order  claims  from  its  clients.  Our  last  recommendation  for  the  stock was NEUTRAL, with a TP of MYR0.67.

A new job in Qatar.  Eversendai has secured a MYR269m contract for the  construction  of  the  Al  Wahda  Arches  and  visitors’  centre  in  Doha, Qatar.  This  is  the  fourth  key  job  the  company  has  secured  in  FY15, boosting its YTD job wins to MYR618m and its outstanding construction orderbook  to  MYR1.7bn.  We  maintain  our  forecasts  that  assume Eversendai to secure MYR800m worth of new jobs in FY15. Assuming an EBIT margin of 7%, the job will earn MYR18.8m in EBIT.

Cease coverage.  The collapse  of  crude oil prices will have a  negative bearing  on  oil  wealth  and,  hence,  the  ability  of  certain  oil-exportingcountries  in  the  Middle  East  to  continue  with  their  spending  on  lavishprojects.  This  does  not  augur  well  for  Eversendai,  as  the  companyderives about 60% of its revenue and 80% of its profits from the Middle East.  In  addition,  while  we  acknowledge  that  Eversenda i  is  a  globally competitive  structural  steel  contractor,  it  needs  to  more  effectively monetise  its  strengths before  a  stock  re-rating can  ensue.  It  has  been struggling  to  recover  variation  order  claims  from  its  clients.  Our  last recommendation  for  the  stock  was  NEUTRAL,  with  a  TP  of  MYR0.67 based  on  10x  FY15F  EPS,  in  line  with  our  benchmark  1-year  forward target P/Es of 10x-16x for the construction sector.

Source: RHB