Eversendai Corp Bhd
(March 17, RM0.785)
Downgrade to neutral from buy with an unchanged target price of 78 sen. Eversendai Corp, via its subsidiaries in Saudi Arabia, has recently secured two new contracts worth RM246 million. 

The first contract valued at RM203 million is awarded by BACS Joint Venture (JV), comprising Saudi Arabian Bechtel Corp, Almabani General Contractors Co and Consolidated Contractors Co WLL. 

The group will undertake the construction of the East, North and South Depots of the Riyadh Metro project — Package 1 (Lines 1 and 2) for the Riyadh Development Authority — which is scheduled to be completed in the fourth quarter of 2016 (4Q16). 

The second contract valued at RM43 million is for a conversion hangar in Riyadh.

Eversendai has already replenished 72% or RM864 million of our financial year (FY15) and calendar year new jobs assumption of RM1.2 billion. Although the jobs win came in within our expectations, we believe the above contracts will help the group to secure more work packages in the US$22.5 billion (RM82.9 billion) Riyadh Metro development. 

With these new projects, Eversendai’s outstanding order book now stands at RM2.3 billion. 

Despite the strong inflow of contract awards, we expect its profit after tax and minority interests (Patami) margin to be in a single digit. 

We estimate that these contracts will contribute between RM15 million and RM20 million based on margins of 6% to 8%, to be spread over FY15 and FY16 earnings. We believe that any improvements in its margin will depend on the extent of cost control on its outstanding works execution. 

The low Patami margin is based on expectation that the group still needs to incur additional operating cost for undertaking oil and gas development projects in FY15. Therefore, we maintain our FY15 and FY16 forecast unchanged at this juncture. — MIDF Amanah Research, March 17

This article first appeared in The Edge Financial Daily, on March 18, 2015.