News Eversendai (“SENDAI”) announced that it had secured a new project in Baku, Azerbaijan worth RM87.3m.
Comments First and more to come. Cresent City project will be SENDAI’s maiden contract award in Baku, Azerbajian. The contract award was not a surprise to us as management had always been positive in securing a contract award in that region. The contract award of RM87.3m is deemed to be part of our order book replenishment assumption of RM1.7b and the gross profit margin for the job is expected to hover around 17%-20%, which is in line with our assumption for Middle East projects. Moving forward, we believe that SENDAI will continue to secure more projects in the CIS region given its strong track record in steel erection and fabrication.
We understand that the scope of work of the abovementioned contract includes connection design, preparation of detailed fabrication drawings, raw material supply, fabrication, blasting, primer, application of fireproofing, installation of the structural steel works and the supply and installation of composite metal decking required for the Crescent City project. The construction will commence shortly and is slated for completion by August 2014.
Earnings visibilities for the next two to three years. To recap, SENDAI has successfully secured c.RM900m worth of contracts in 2012, which was above our expectations. With this new contract secured, its order book now stands at c.RM1.7b, which could last it for another two to three years.
Outlook Moving forward, we expect the group’s investment in Technics to bear fruits in the medium term as we believe that management could venture into the oil and gas sector to complement its steel fabrication business. Technics will be a strong candidate for SENDAI to venture into the oil and gas industry as it can leverage on Technics’ established track record and its own existing capacity.
Forecast No changes to our earnings forecasts.
Rating Maintain OUTPERFORM
We maintain our OUTPERFORM recommendation as the current price of RM1.10 now offers a 37% upside to our unchanged Target Price of RM1.51.
Valuation We are maintaining our Target Price of RM1.51 based on an unchanged 8.0x PER on the FY13 EPS.
Risks Escalating raw material costs.
Delays in construction projects.