Eversendai earnings forecasts lowered by HLIB Research

PETALING JAYA: Eversendai Corp Bhd’s earnings forecasts have been slashed by up to 43% despite the group’s strong job wins of RM1.3 billion to date, due to assumptions of higher finance cost as debt levels continue to increase.
In a note yesterday, HLIB Research said it revised the group’s financial years 2017 and 2018 earnings downwards by 43% and 31% respectively, citing its debt levels have doubled since FY13 to RM1.2 billion as of FY16.
On Tuesday, Eversendai announced it has recently secured RM558 million worth of contracts, which consist of RM357 million in India and RM201 million in the Middle East.
Based on its orderbook of RM2.4 billion as of end FY16, coupled with a burn rate of RM450 million in the first quarter of 2017, HLIB Research said it estimates the group’s orderbook to stand at RM3.2 billion.
The research house said this translates to a cover ratio of two times on FY16 revenue which is rather strong considering the relatively fast track nature of its structural steel jobs.
It added that the management is gunning for RM2.5 billion in new job wins for FY17, versus its more conservative target of RM2 billion.
“Whilst we acknowledge the strong job wins that Eversendai has amassed over the past two years, we remain cautious on to what extent this will translate into a decent level of earnings.
“To illustrate, Eversendai recorded razor thin net margins of 2.4-2.5% for FY14-15 and a core loss (of RM160 million) in FY16,” it noted.
In addition, HLIB Research said although the group’s bread and butter operations in the Middle East are doing well, its oil and gas division remains in the red.
“Delivery of the two liftboats (an RPT contract with its holding-co Vahana) which was initially scheduled for Q1’17 and Q3’17, has now been delayed to 2H17 and 1H18.
“However, we take some comfort that Vahana has secured financing for one of the two liftboats which should alleviate payment risk to Eversendai,” it added.
The research house downgraded Eversendai to “sell”, from “hold” previously, with an unchanged target price of 58 sen, given strong share price run.
“In our view, Eversendai’s steep share price run (68% since end-February) cannot be justified by its earnings. We feel that investors are pricing in too much of an earnings recovery (from a loss in FY16) without taking into account the risk associated with its erratic earnings delivery,” it said.