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Eversendai Corp Bhd
(Feb 10, RM0.65)
Maintain neutral and increase target price (TP) to 63 sen:
Eversendai announced that it had been appointed the main contractor by PKT Logistics Group of Malaysia for the construction of PKT’s fourth-generation warehouse in Penang. The job is worth RM120 million. The contract involves the construction of 12 modular warehouses in the shape of waves, a rest and relaxation area for truckers and an office suite that comes equipped with a covered solar parking lot.  Works are scheduled to commence in March this year and to be completed in April 2016.

We are positive on the contract win as the group has benefited from the long-standing relationship with PKT Logistics after constructing the latter’s RM65 million warehouse in 2010. Besides, the contract will not be the only Malaysian project for this year as we expect the group to secure structural steel and fabrication works both in Petroliam Nasional Bhd’s refinery and petrochemical integrated development project in Johor and oil and gas (O&G) projects in Sarawak.

Thus far, for this financial year (FY15), Eversendai has replenished RM349 million worth of contracts, accounting for 29% of our new job order assumption of RM1.2 billion. This new project raises the group’s outstanding order book to RM1.74 billion from RM1.62 billion. Assuming a profit before tax margin of 5%, we estimate this contract will contribute about RM6 million to the group, spread over FY15 and FY16. These earnings accretions have already been factored into our net profit forecast.

With the upcoming results announcement for the fourth quarter of FY14 ended December at the end of this month, we expect FY14 normalised profit after tax and minority interest to improve to between RM26 million and RM28 million. We anticipate the improved earnings to be backed by improving work progress of its ongoing O&G-related projects secured last year. We expect margins to expand as more of these jobs progress. This will partly offset the additional expenses for the preparation to execute its new O&G contracts. We revise upwards our FY14 earnings assumption by 35% and FY15 by 9%. We peg our FY15 earnings per share of 6.3 sen to a three-year quarterly average price-earnings ratio of 10 times. — MIDF Research, Feb 10.

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This article first appeared in The Edge Financial Daily, on February 11, 2015.

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