Posted on 07 Mar 2016
At an investor briefing last week, Eversendai said the new jobs is likely comprise structural steel for Malaysia tallest buiding, the KL118 project (RM300 million) and other smaller jobs such as a power plant in Thailand, Jimah 3B and the Dubai Eye, the tallest ferris wheel in the world.
"We reckon this would be a Herculean task considering its heavy reliance on the Middle East for jobs in this low oil price environment," HLIB Research said, noting that its FY16 job wins target is lower at RM1.4 billion.
Eversendai's FY15 core earnings surged 94% to RM48 million. Even though its revenue hit a record RM1.8 billion in FY15, core net margin remained thin at 2.7%, a stark decline compared with the 6% to 12% recorded in FY11 to FY13.
The management explained it was due to heightened bidding intensity in the Middle East and the lack of iconic jobs which are generally more lucrative.
HLIB Research has lowered Eversendai's FY16 and FY17 earnings by 17% and 7% respectively after imputing lower margins on new job wins.
Having seen its orderbook doubling from RM1 billion to RM2 billion between Q1 FY14 and Q1 FY15, this appears to have plateaued around the RM1.7 billion to 1.8 billion level over the past three quarters.
Its current orderbook of RM1.7 billion implies a cover ratio of one time on FY15 revenue.
Eversendai recently raised its stake in Singapore-listed Technics O&G from 19% to 30%. With Eversendai emerging as the largest shareholder, it intends to eventually take an active management role in Technics.
It is worth to note that Tecnics share price has fallen from slightly above SG$1 when Eversendai first bought it in 2013 to SG$0.16 currently due to losses and recently, the falling out of a major divestment and reverse takeover plan.
HLIB Research is maintaining a "buy" call on Eversendai, with a lower target price of 84 sen.
"We sense a more challenging landscape for Eversendai going forward. Nonetheless, this should not derail our investment thesis on Eversendai's earnings rebound as evident by its recent Q4 results backed by margin recovery," it said.
