Eversendai earnings rebound in last two quarters

by **Cals** Tue 16 Jun 2015, 20:51

Eversendai earnings rebound in last two quarters

Eversendai Corp Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
(June 15, RM0.80)
Maintain buy with a target price of RM1.55: Last week, we met up with Eversendai managing director, Tan Sri AK Nathan, and left on an upbeat tone, fuelled by three catalysts: recovering earnings, surging job wins and a strengthening US dollar.
Its earnings delivery has been questionable in the past two years, being plagued by variation orders (VOs), high oil and gas (O&G) start-up costs and associate losses. With VO-related jobs completed, O&G jobs contributing and Technics no longer an associate, earnings in the last two quarters rebounded strongly.
Eversendai’s order book currently stands at an all-time high of RM2 billion. This translates into a strong cover ratio of 2x, the highest level compared to its historical range of 1.1x to 1.6x.
Financial year 2014 (FY14) was a strong year for job wins at RM1.1 billion (FY13: RM669 million) and the momentum is continuing into FY15 with RM864 million bagged year-to-date (62% of our RM1.4 billion full-year target). Management aims to surpass the previous high of RM1.7 billion for FY10. This implies that another RM804 million worth of contracts could be forthcoming in the next six months. Contracts are likely to materialise from the Middle East, India, the refinery and petrochemical integrated development and KL118 projects.
Last week, the ringgit hit a nine-year low against the dollar at 3.77. Eversendai is a beneficiary of a strengthening dollar as 76% of its order book is in the Middle East whose local currencies are pegged to the dollar.
The delay in the execution of order book is a key risk to its earnings recovery prospects.
We raise FY15 to FY17 earnings by 4% to 9% as we impute a higher revenue recognition of its order book.
Coming off a low base in FY14, we project FY15 earnings to surge 70% year-on-year (y-o-y) to RM64 million. This will further increase to RM93 million (+46% y-o-y) and RM114 million (+23% y-o-y) in FY16 and FY17.
Admittedly, Eversendai’s share price has been a major disappointment, being mostly “underwater” since its initial public offering in July 2011. It is currently 50% below its offer price.
We raise our sum-of-part-based TP from RM1.06 to RM1.55 following our earnings upgrade and rolling over from FY15 to FY16. Our target implies FY15 price-earnings ratio of 18.9x but a much more palatable 13x and 10.5x in FY16 and FY17 once the earnings recovery (or shall we say “growth”) gains further motion.
However, we believe that a reversal of fortunes is forthcoming. The “problematic 3” are gone and earnings are set to recover strongly (3 year CAGR: 45%) underpinned by its all-time high order book and surging job wins. Eversendai also offers investors an exposure to the thematic strengthening US dollar play. — HLIB Research, June 15.
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This article first appeared in The Edge Financial Daily, on June 16, 2015.