Results Review

• Excluding a forex gain of RM4.9mn, Eversendai’s 1HFY19 core profit of RM14.6mn came in below our expectation, accounting for 26.6% of our full-year estimate. The variance was mainly due to lower-than-expected revenue, and unexpected widened losses recorded by its mechanical fabrication, installation & modularisation (MFIM) segment.

• YoY, while 1H19 revenue was relatively flat at RM779.5mn, the core profit plunged 59.8% to RM14.6mn. The weaker results were mainly dragged by the MFIM segment, which saw its net loss widened from RM1.2mn a year ago to RM17.9mn.

• QoQ, core net profit dropped by 25.4% to RM6.4mn as the revenue eased 4.9% to RM379.9mn. Widen losses suffered by the MFIM division was the main drag on earnings. In the reporting quarter, the MFIM reported a negative revenue of RM807k, which we think was due to reversal of variation orders that were not realised.

• Net gearing level remains a major concern even though it has dropped slightly from 1.10x to 1.07. Despite the first liftboat “Vahana Aryan” had secured charter contract about a year ago in 1H18, its trade receivables remain elevated at RM1,042.0mn.

Impact

• Following the weaker-than-expected results, we slash FY19/FY20/FY21 earnings forecast by 42.7%/20.7%/26.9% respectively after revising revenue recognition and margin assumptions for various projects.

Outlook

• Its estimated outstanding order book as of end-June 2019 stood at RM2.4bn. This could provide earnings visibility to the group for about 1.5 years.

• It has secured about RM870mn of new jobs as of end-June 2019, versus our full-year order book replenishment assumption of RM1.6bn for FY19.

Valuation

• Following the earnings adjustment, we arrive at a lower target price of RM0.295 from RM0.37 previously, based on unchanged 6x CY20 earnings. Maintain SELL.

Source: TA Research - 29 Aug 2019