Results

• Eversendai reported 1QFY16 revenue of RM440.7m (+9% YoY, -10% QoQ) and headline loss of RM50.4m

• However, after stripping off (i) forex loss of RM10.7m and (ii) fair value loss on financial assets (i.e. stake in Technics) of RM62.6m, Eversendai actually posted core earnings of RM22.9m which is an increase of +9% YoY and +35% QoQ.

• Deviation

• From a core earnings perspective, 1Q numbers were above expectations at 35% of our full year forecast and consensus.

Dividends

• None declared. Usually in 4Q.

Highlights

• Strong job wins... Eversendai managed to amass over RM700m worth of new jobs in 1Q. This is a commendable sum as it already makes up 41% of the full year amount in FY15 which was a record high of RM1.7bn. Some of the notable job wins this year include (i) KL118 tower, (ii) a mixed development in KL, (iii) Al Maryah Central Mall in Abu Dhabi, (iv) Dubai Eye Ferris wheel and (v) its maiden job win in Thailand involving M&E for a 600MW coal fired plant.

• ...brings orderbook to a new high. Following strong job wins, Eversendai’s orderbook is now at a record RM2.2bn. Management is gunning for another high in job wins this year at RM2bn vs our more conservative target of RM1.5bn (47% hit). Management is hopeful that another RM700-800m worth of new jobs can be snagged in 2Q alone.

• Worst over for Technics? There are encouraging signs that a turnaround could be emerging for its 29% associate Technics. Several structural changes have taken place such as the appointment of a new CEO and board of directors. The emergence of Tan Sri AK Nathan as the Chairman of Technics signals that Eversendai could take a more active role in its management.

Risks

• Strengthening of the MYR (i.e. weakening of USD) would negatively impact its profits.

Forecasts

• While the results were above expectations, we retain our FY16 earnings forecast as we take a conservative stance.

Rating

• Maintain BUY, TP: RM0.91 (+51% upside)

• Eversendai’s share price has been unjustifiably punished, falling by -13% yesterday after the results were released during mid-day. We reckon that this was due to investors focusing on the headline loss rather than dissecting the results which actually implied a core profit which was up both YoY and QoQ. This divergence in share price and fundamentals present an opportune window to accumulate. The stock also trades at a bargain 0.47x P/B and inexpensive FY16-17 P/E of 7.3x and 6.5x.

Valuation

• Despite an unchanged forecast, we raise our SOP based TP from RM0.84 to RM0.91 as we apply a normalised discount of 10% from 20%to reflect its improving operational matrices. Our TP implies FY16-17 P/E of 11.7x and 10.4x respectively.

Source: Hong Leong Investment Bank Research - 31 May 2016