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Friday, March 4, 2016
Brokers Report: Eversendai Corp - Eyes on the Middle East
Maintain Buy call with lower Target Price (TP) of RM0.90 (+29%)
Strong job win momentum to continue
Following strong job wins in 2015, the momentum would continue in 2016 especially from Middle East and Malaysia. Variation order claim is expected to pick up in 2016, providing upside to our earnings forecasts. The pick up in job flows from key global events in the Middle East would re-rate the stock. Post earnings forecasts adjustments, we maintain BUY on Eversendai with a lower MYR0.90 TP (-10%) based on 12x 2017 PER.
Potential job wins from ME and Malaysia
Eversendai’s 2015 record high job wins of MYR1.73b was mainly from Middle East (64% of total) and 65% consisted of structural steel works. In 2016, Eversendai would continue tendering actively in Middle East and Malaysia but would tender selectively in India. The major events including World Expo 2020 in Dubai and World Cup 2022 in Qatar would continue to drive construction jobs in the Middle East. Locally, it could benefit from RAPID, KL118 Tower and upcoming power plant works.
More variation order claims in 2016
Management guided its normalised 2015 net margin should be ~5% (vs. 3.1% reported net margin) due to revision of its variation orders value. Outlook for its margins remains challenging due to competition and lack of iconic project works. Positively, it has started variation orders claim on the Qatar National Museum project in 2015 and expects further claims from Qatar and the Tanjong Bin power plant project in 2016.
Revising earnings forecasts
We incorporate the higher-than-expected 2015 job wins (vs. our earlier forecast of MYR1.5b) but we revise down our margin assumptions. Subsequently, we reduce our 2016/17/18 EPS estimates by -8%/-10%/-7%. Our new TP is MYR0.90 (-10%) after we roll forward our valuation to 2017 EPS based on an unchanged 12x PER. Key re-rating catalyst would emanate from accelerating job awards from the Middle East as the construction for the major events goes into full swing. Maintain BUY.
Source: Maybank IB Research, 04 March 2016