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.
Source: Kenanga
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