Eversendai Corporation (“ECB”) is a leading integrated
structural steel turnkey contractor in the Middle East, India and South-East Asia and has its own
fabrication facilities in Malaysia, UAE and Qatar. The company has strong
prospects ahead, driven by its strong track record in securing projects in its
main markets in booming Middle East and India. We project ECB’s revenue to grow
at a 3-year CAGR of 13.3% with net profit at a similar 12.3% growth. We like
ECB for its impressive track record as a preferred Middle East contractor, its
drive to expand in another new big market - India and its continued strong
earnings prospects riding on these two booming regions as well as possibly in
Malaysia too. We also like the company for its integrated business model, which
distinguished it from other players with its stronger gross construction profit
margin of c.20%. We are initiating coverage on Eversendai with an OUTPERFORM
rating and a Target Price of RM2.33, based on 12x PER of its FY13 earnings,
which implies a 54.3% capital upside for the share price from its current level
of just RM1.51.
Strong and reputable
contractor. ECB’s operation is based
on an integrated business model from structural design, engineering, and fabrication
to erection. It has a strong track record in constructing iconic projects such
as the Sky Bridge connecting Petronas Twin Tower 1 and Tower 2, and in the
Middle East, where it helped to construct signature projects such as Emirates
Towers in Dubai, New Doha International Airport in Qatar and Burj Khalifa (the
world’s tallest building) in Dubai.
Continued stable job
flows from the Middle East. Middle
East accounts for around 70% of the company’s revenue currently with its current
principal markets being UAE, Qatar and Saudi Arabia. Growth prospect remains
healthy, driven by new government spending,
for example, from the staging of FIFA World Cup 2022 in Qatar. The Qatar government
has announced that it will spend USD125.0b for projects to be completed here by
2015 while we also anticipate higher demand from Abu Dhabi (UAE) via the Abu Dhabi
Economic Vision 2030 Plan, where the emirate
plans to spend USD400.0b in investments on
infrastructures from 2009-2013. We are projecting a stable new order
book replenishment of around RM750.0m-RM1.0b for the group in the Middle East over the next few years.
India – the new
growth market. India is set to help
drive a stronger growth for ECB going forward with the company’s new steel
fabrication plant here, which will raise the group’s fabrication capacity by
30%. India is experiencing an upsurge in its construction industry, which has
grown by over 10% annually over the past 5 years. In its 11th Five Years Plan,
the Indian government is expected to spend approximately USD231.0b alone on just
its power sector to beef up electricity supply from 2007-2012. With the potential
job flows coming from India coupled with
its new fabrication capacity in the country, we forecast ECB’s order
book in India to jump to RM750m annually from just RM250m at present.
Fair value at RM2.33.
With its strong prospects in the booming regions of Middle East and India, we
believe that ECB is set to steal more and more limelight ahead with its
contract flow wins. Hence, we are initiating coverage with an OUTPERFORM
recommendation and a Target Price of RM2.33, which implies a 54.3% capital
upside for the current share price.
Source: Kenanga
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