Eversendai - 1H12 results within expectations

Period    1Q12/1H12

Actual vs. Expectations

 The reported 1H12 net profit of RM57.7m came in within expectations, accounting for 46% and 45% of ours and the streets’ estimates of RM125.4m and RM129.6m respectively.

Dividends   No dividend was declared.

Key Results Highlights

 YoY,  the net profit fell by 10% to RM30.5m (from RM34.0m) due to a slower revenue recognition from Middle East, which was down by 20.5%. The slower recognition was predominantly due to the shorter operating months in 2Q and timing differences in recognising the revenue from its ongoing projects i.e. Cleveland Clinic, New Doha International Airport, etc. We expect the revenue recognition to pick up in the next quarter.

 QoQ,  the net profit improved by 12% from RM27.2m to RM30.5m backed by improved margins for its Middle East and India projects, which have risen by 2ppt to 16.8% and 3.4ppt to 11% respectively. Some of its key projects in India are EMCO Power Plant project in Warora and Worli Mixed-Use Development project in Mumbai.

Outlook   Its current order book stands at RM1.7b, which are 41% driven by its structural steel based contracts segment, 34% from power plant and 25% from civil construction works. In terms of geographical breakdown, 49% of the order book is based in Middle East, 19% from India and 29% from Malaysia. Some of its ongoing projects in Malaysia include KLIA2, Tanjung Bin power plant, Manjung power plant and construction of the Tokuyama plant in Sarawak. All in, this will provide at least another 2 years of earnings visibility for the group.  

Change to Forecasts

 No changes to our forecasts.

Rating  Maintain OUTPERFORM

 We are maintaining our OUTPERFORM recommendation as there is an attractive upside of 28% to our target price of RM1.90.

Valuation    We have revised down our Target Price slightly to RM1.90 based on 10x PER on its FY13 EPS (previously RM1.94 based on 12x PER FY12) as we roll out our valuation to FY13 earnings with a lower PER due to liquidity issue.

Risks   Higher raw material costs and delays in projects.

Source: Kenanga