This article first appeared in The Edge Financial Daily on December 27, 2018
EA Technique (M) Bhd
(Dec 26, 34 sen)
Maintain outperform with an unchanged target price (TP) of 73 sen: EA Technique (EAT) announced that it had been awarded two contracts, one each from Petronas and Sungai Udang Port Sdn Bhd with a combined value of RM94.5 million.
The two contracts will involve seven vessels, that is three for Petronas and four for Sungai Udang Port, of which five will be using its own assets and the other two are charter-in-vessels.
The contracts’ lifespan is within one to seven years including extension periods.
These contract wins are positive to the group as it improves earnings visibility for up to five years, while also improving further the usage of its vessels and shipyard.
Inclusive of these contracts, we estimate the group’s outstanding order book in hand currently stands at RM900 million, inclusive of additional extensions.
This translates into four times its marine operations’ revenue as of financial year 2017 (FY17).
We have assumed the additional extension in our forecast as we believe clients will exercise the options given the group’s good track record and business relationship.
Furthermore, we understand that the group has submitted various tenders amounting to about RM1 billion.
We make no adjustment to our earnings estimates as we do not see contribution in FY18, while also assuming this as part of the FY19 replenishment.
We estimate these projects are expected to yield about 30% margins at the earnings before interest, taxes, depreciation and amortisation level.
The share price has dropped significantly recently, weighed by the weak sentiment in the market, which we think is unjustified.
Its defensive business nature is one of the key reasons we like this stock. EAT’s business is not impacted by the collapse in oil prices either, unlike other direct oil and gas (O&G) players.
The group’s business mainly involves the transportation and storage of O&G products which puts them in a safer and more desirable space.
Our “outperform” rating is affirmed, with TP kept unchanged at 73 sen based on a 10 times multiple to FY19 earnings per share of 7.3 sen.
We like EAT due to its i) defensive business nature with minimal risk exposures to oil price fluctuations, ii) strong earnings visibility up to three years on the back of solid order book in hand, and iii) relatively healthy balance sheet supported by its 76% long-term contracts. — PublicInvest Research, Dec 21