Results

• Eversendai posted 2QFY17 results with revenue of RM465.9m (+18% QoQ, +11% YoY) and core earnings of RM15.9m (+5% QoQ, -1% YoY).
• Cumulative 1H core earnings came in at RM31m, down 20% YoY. In deriving core earnings we have removed the impact of forex and impairment on Technics (recorded last year).

Deviation

• 1H earnings were above our expectations at 67% of our full year forecast but within consensus at 50%. The positive results surprise largely stemmed from higher than expected margins.

Dividends

• None declared.

Highlights

• Profitability continues. Following its core loss of RM68m in FY16 (largely due to losses incurred in 4Q), Eversendai managed to remain profitable in 1HFY17. Its main market in the Middle East (56% of 1H revenue) as well as the Malaysia and India operations was all profitable.
• O&G returns to black. The O&G segment (which is mainly building 2 liftboats) returned to the black in 2Q (1Q: loss of RM4.7m at PBT level). Construction on the 2 liftboats is progressing well with scheduled delivery in 4Q17 and 1H18 respectively.
• Strong job wins. YTD job wins have been strong at RM1.4bn (FY16: RM1.7bn), bringing its orderbook to a near high of RM2.7bn. This implies a cover of 1.7x on FY16 revenue which is rather high considering the fast turnaround nature of its jobs. Looking forward, management is targeting for an orderbook replenishment of RM2.5bn for FY17.

Risks

• While job wins have been strong, execution remains a key risk to watch out for.

Forecasts

• Given the stronger than expected results, we raise FY17-18 earnings by 17%, 14% and 12% respectively. Rating Upgrade to HOLD, TP: RM1.01.
• While the results point to a strong earnings recovery this year (as opposed to a loss in FY16), we reckon this has already been reflected in its share price given the strong 83% appreciation YTD. We upgrade our rating from Sell to HOLD.

Valuation

• Apart from our earnings upgrade, we also (i) roll over our valuation horizon from mid-FY18 to end-FY18 (at an unchanged 12x P/E target) and (ii) impute the enlarged share base from the impending 10% share placement. All in all, our TP is raised from RM0.85 to RM1.01.

Source: Hong Leong Investment Bank Research - 29 Aug 2017