Thursday, June 20, 2013

Eversendai 21/06/2013

Lee Yen Ling
Research Analyst,
Maybank Investment Bank, Malaysia

Key Takeaways
~ Eversendai’s success rate is typically 20% of the tender book.
~Eversendai has secured maiden contracts in Azerbaijan and it is very well positioned to secure the complex
jobs that are coming up.
~ Expect earnings in the following quarters to pick up. This is due to the recognition of some variation orders
and many of its key projects are at a respective advanced stage.



Q1. Eversendai has openly declared that it is tendering for RM8 billion worth of projects, and has an order book of RM1.5 billion. Any details on what could be the potential wins, what jobs, where, how much?

• Eversendai’s success rate is typically 20% of the tender book. Construction billing a year is about RM1 billion.
• Domestically, we are looking at job wins from the construction of high rise commercial buildings where Eversendai can
use its valuable composite structure skill due to such good margins.
• Looking at the petrol chemical plant projects and Rapid Pengerang, Johor.
• Expect companies to secure jobs in the oil field countries due to a lot of infrastructure requirements for example, iconic stadiums and rail requirements in Qatar, in light of the Qatar FIFA 2022.
• Azerbaijan is also undergoing a construction boom due to its oil money and a lot of infrastructure and iconic buildings are in the pipeline. Eversendai has secured maiden contracts in Azerbaijan and it is very well positioned to secure the complex jobs that are coming up. Azerbaijan is looking to build the world’s tallest building.

Q2. 1QFY13 margins were somewhat low, which Eversendai attributed to timing issues, as several substantial variation orders were still pending then. Fair to expect brighter prospects for Q2, or pick up only later?


• Expect earnings in the following quarters to pick up. This is due to the recognition of some variation orders and because many of its key projects are at a respective advanced stage.


Q3. Some of the big headlines that we’ve seen includes QE tapering, fund flows, emerging markets, as well as China’s economy slowing down. Which risk weighs the heaviest on Eversendai?

• The biggest risk would be the delay in construction awards.


Q4. Update on JV with Technics Oil & Gas Ltd (since March), how is Eversendai benefiting from it?

• Since the formation of the JV, the JV has secured waterfront yards in the Middle East which is expected to
commercialize by the end of this year. The JV has also tendered for 3 oil & gas projects worth a total of RM500 million to RM800 million - expects the award to materialize by next year.
• This new oil & gas division will be Eversendai’s new business and new earnings growth.


Q5. You have a buy call on Eversendai at RM1.70, tell us about your valuation method.

• Based on the current outstanding order book around RM1.5 billion, about 70% of our earnings forecast for 2013 is already in hand. They just need to secure another RM500 million for this year, just to meet our expectations. We and the other brokers are estimating 1.3 billion new jobs for this year and next year. This is still below management’s expectations of 1.5 billion.
• In total, we are looking at 2% earnings growth and 12% next year.
• Based on our earnings forecast, we’ve attached a 10x forward PE to derive our target price of RM1.70 which is still undemanding considering the bigger cap players of 15x.

Disclaimer: No information should be concluded as buy or sell, please consult your personal remisier for your personal investment decision. 

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