By Khairul Khalid
Eversendai Corp Bhd has been downgraded by MIDF analysts, partly due to the slower economic and construction growth in the Middle East caused by the collapse in oil prices.
“Eversendai’s first nine months of financial year 2015 (9M15) earnings of RM51.7 million were below our expectation.
“Its 9M15 results underpinned by contribution from higher profit recognition and modest tax expense. However, we revised lower our earnings estimates for financial year 2016 (FY16) due to lower construction growth rate in the Middle East and high international tendering cost,” said MIDF.
Jobs in Middle Eastern countries account for approximately 70% of Eversendai’s entire revenue portfolio.
Yesterday, the steel construction specialists posted a nett profit of RM14.5 million for its third quarter of financial year 2015 (3Q15), up a massive 400% year-on-year from RM2.9 million in 3Q14.
Eversendai’s total revenue and profit after tax increased to RM1.3 billion and RM51.8 million respectively for the 9M15 compared to RM694.3 million and RM20 million in the preceding year.
According to MIDF, there is lower gross domestic product (GDP) forecasts of 3.5% to 5.5% among the Gulf Cooperation Council (GCC) countries.
“Moreover, looking into 1Q16, the expectation of continued softness in crude oil price of between US$45 per barrel (pb) and US$55 pb would drag the current construction growth rate lower in the GCC countries,” said MIDF.
“We reckon that the results for Eversendai’s 9M15) are transient in view of an estimated 4% blip for construction growth in 2015 from 10% in 2014 among GCC countries, following lesser GCC region construction and GDP growth.”
MIDF has trimmed Eversendai’s forecast earnings for FY16 earnings by 34% to RM60 million.
“Our revision is on the account of higher labour costs, US dollar versus ringgit rate assumptions pegged at US$1/RM4 (from USD1/RM4.30) which lowers earnings translation gains, as well as lower assumption of replenishment rate of RM750 million instead of RM1 billion for FY16 from lesser construction growth in GCC region,” said MIDF.
As of September 2015, Eversendai has secured approximately RM1.4 billion in new contracts and its order book stood at RM1.8 billion.
MIDF has downgraded its recommendation on Eversendai to “neutral” with a target price of 85 sen per share.
At noon break today, Eversendai shares were trading at 86 sen, up 1 sen.
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