Eversendai Corp Bhd
(Sept 8, RM1.06)
Maintain sell with an unchanged target price (TP) of 58 sen: We attended Eversendai Corp Bhd’s results briefing for its second quarter of financial year 2017 (2QFY17). While the profit margin recovered after a major kitchen-sinking exercise in 2016, there are still lingering concerns about the lift boat project and elevated receivables.
The management is confident of hitting RM2 billion revenue this year, a target set by the company about five years ago. For the first six months of FY17 (1HFY17), it recorded a revenue of RM861.8 million, versus RM862.3 million in 1HFY16. We forecast a revenue of RM1819.6 million for FY17.
Year to date, Eversendai has secured a total of RM1.377 billion of new contracts, of which close to 70% of the new orders came from the Middle East. The company is optimistic about securing at least RM2 billion of new jobs in FY17, largely in line with our assumption of RM2 billion for FY17. Its outstanding order book declined from RM3.2 billion a quarter ago to RM2.7 billion. This would provide earnings visibility to the company for the next two years. It currently has a tender book of RM12 billion, mainly for projects in the Middle East. The management sees plenty of opportunities in Saudi Arabia and the United Arab Emirates markets.
The management updated that the first lift boat was at a tail-end stage with 95% completion while the second lift boat was 60% completed. There is a delay in the completion of first lift boat from 3QFY17 to end-FY17. We understand that the client, Vahana Offshore (S) Pte Ltd, is currently negotiating a charter contract for the lift boat.
No changes to our TP of 58 sen, based on six times calendar year 2018 earnings per share. This is after applying two times price-earnings ratio (PER) multiple discount to our target PER multiple of eight times. The discount is in view of sizeable receivables, which increased to RM1.664 billion, together with a relatively high net gearing level of marginally above one times. We maintain “sell” call as we think the share price has run ahead of its fundamentals. We will revisit the target PER when the first lift boat is delivered to the client and the concerns about the receivables and gearing level are allayed. — TA Research, Sept 8