Eversendai Corp Bhd
(Jan 11, 67 sen)
Maintain underperform with an unchanged target price (TP) of 50.5 sen: Last Thursday, Eversendai Corp Bhd announced that its group of companies in Singapore, India and Qatar had secured new contracts worth a total of RM406 million. In Singapore, it secured a hi-tech data processing and computing facility project while in India, it clinched a state-of-the-art secretariat building project featuring two 45-storey towers. In Qatar, it won the grating support structure works for an arch along the Lusail Expressway.

 
We are “neutral” on these wins as they collectively fall within our financial year 2019 (FY19) replenishment assumption of RM1.6 billion. Year to date, Eversendai’s replenishment stands at RM406 million.

Recall in FY18, the company bagged RM1.44 billion worth of job exceeding our FY18 replenishment assumptions by RM241 million, which we included in our FY19 replenishment of RM1.6 billion as the bulk of the works will commence this year. As such, we have a remaining replenishment target of RM953 million after accounting for the recent RM406 million wins.

Assuming an average profit before tax margin of 4% and a 36-month span for the contracts, the projects are expected to contribute approximately RM5.2 million per annum to the bottom line. Currently, Eversendai’s outstanding order book stands at approximately RM2.5 billion, providing visibility for the next one to one-and-a-half years. We also note that it has received payment of US$36 million (RM147.42 million) for their first lift boat to Vahana  Offshore (S) Pte Ltd in the second quarter of 2018 (2Q18).

We believe that it will not be long before Eversendai receives its remaining payment of US$54 million and we expect its net gearing to come off to approximately 0.81 time (from 1.06 times as of 3Q18.

We maintain our less upbeat outlook for now, as we continue to closely monitor and await the following catalysts: i) more concrete signs of upbeat prospects for the construction sector and earnings delivery; ii) higher order book replenishments from Eversendai’s existing tender book of approximately RM10 billion; and iii) reduction in net gearing following the remaining payment of US$54 million. Should the above developments take place, we may review our estimates.

We make no changes to our FY18-FY19 estimated (FY18-FY19E) core net profit as the contract wins fall within our replenishment assumptions. We maintain “underperform” call with an unchanged TP of 50.5 sen based on an unchanged valuation of seven times FY19E price-to-earnings ratio, in line with our applied small mid-cap’s range of six to 11 times.

We pegged Eversendai towards the lower end of our valuation range given its extremely volatile earnings pattern and thin margins for its India operations, and oil and gas segment.

Upside risks to our call include higher-than-expected order book replenishment and better-than-expected margins. — Kenanga Research, Jan 11