By Xavier Kong
Eversendai Corp Bhd had fulfilled its promise for stronger order book growth compared to 2014, and has even further diversified into the oil and gas sector. However, with prices of crude oil doing a plunge, could the boosted order book keep Eversendai going?
Business model: Eversendai, incorporated in 1993, specialises in steel construction. The company has since evolved from a structural steel erection specialist to an integrated structural steel turnkey contractor with a design and engineering division as well as modern fabrication facilities in Malaysia, the United Arab Emirates (UAE) and Qatar.
Among its major projects were steel works for Kuala Lumpur Tower; Petronas Tower 2; PKT Logistics; KL Sentral Station; coal-fired power plant boilers in Malaysia; the Burj Al Arab, Dubai Mall, Ski Dubai and Burj Khalifa in Dubai, UAE; Capital Gate in Abu Dhabi, UAE; and the New Doha International Airport in Doha, Qatar.
Eversendai Group is also diversifying into the manufacturing of liftboats for the offshore oil and gas (O&G) industry. It currently employs over 10,000 staff in seven countries and operates out of 10 offices. Eversendai was listed on Bursa Malaysia in 2011.
Within the first quarter of 2015, Eversendai has managed to secure jobs worth a total of RM864 million, 72% of the company’s total contract worth in the whole of 2014.
Two more notable jobs, the construction of depots for the Riyadh Metro worth RM203 million, as well as the roofing works and walling for a conversion hangar in Riyadh worth RM43 million, would raise the company’s order book to about RM2 billion, which would see contributions to the group until 2016.
Job wins have remained strong throughout the year, with the group fulfilling its promise to secure superior order book growth from 2014. The latest series of contract wins at the end of November are valued at about RM316 million in total, and range from a structural steel roof of a theme park in Doha, Qatar, the structural steel works of the Statue of Unity in Gujarat, India, to a series of jobs for Petronas’ Refinery and Petrochemical Integrated Development Project in Pengerang Johor.
Shareholders and management: Eversendai founder AK Nathan is also currently executive chairman and group managing director. He is also a majority shareholder of Eversendai with a 71.76% stake via his vehicle Vahana Holdings.
Other substantial shareholders of Eversendai are the Employees Provident Fund with a 7.39% stake, and Lembaga Tabung Haji, with a 5.21% stake.
Notable board members include Narishnath Nathan, son of the founder, who serves as an executive director, as well as the deputy head for the group’s Middle Eastern operations.
Share performance: Eversendai shares started the year on a lower note, with the group seeing their lowest points intra-year on Jan 9 and Jan 13, coming in at 49 sen.
However, the stock then saw a rise over the first half of the year to eventually hit their intra-year high of RM1.03 on July 20, before ending off the year to close on Dec 31 at 76.5 sen.
What analysts think: Analysts were upbeat on Eversendai’s slew of contract wins. TA Securities also expects the group to be able to secure the structural steel works for the KL118 Tower project.
TA noted that Eversendai is a specialised structural steel turnkey contractor, with strong capability and a good track record, while also holding the home ground advantage by being a local player with manufacturing facilities nearby. Having a good working relationship of more than 20 years with Samsung (The Samsung C&T Corp-UEM Group Bhd consortium secured the KL118 Tower project from Permodalan Nasional Bhd) would not hurt Eversendai’s chances either.
Kenanga IB noted that the group, as of Dec 1, had a massive tender book of RM25 billion, with the bulk of it for jobs in the Middle East, with a current outstanding order book of about RM1.8 billion providing earnings visibility for Eversendai for the next two years.
At the same time, with over 75% of its order book in the Middle East, Eversendai looks to benefit as well from the strong US dollar, as the countries of the Middle East do peg their currencies to the US dollar.
However, TA is concerned that the plunge in crude oil prices will affect Eversendai, as it would not only affect the group’s oil and gas segment, but could also affect the spending of the public and private sector in the Middle East which, as mentioned above, is where 75% of the group’s order book is.
Earnings forecast:
StockStalk: With prices of crude oil doing a dive, it would seem that Eversendai is looking at pressure from more directions than one. Not only would its O&G segment, which contributed 40% of the group’s nine months of financial year 2015 pre-tax profits, take a direct hit, its steel construction segment, which is the group’s core, could take further damage, though indirectly.
With the Middle East dependent on prices of crude oil, the dive could well cause governments to decide to cut back spending, and instead prioritise, which would lower the number of contracts, and make competition stiffer in the region.
On the other hand, Eversendai has established itself, both locally as well as in the Middle East, as an experienced and reliable structural steel player, which could allow the group to continue to see order book growth (and earnings visibility) beyond the two years to 2017 that the group’s current order book will provide.
Furthermore, analysts remain confident that Eversendai can replenish its order book, with TA’s replenishment assumption holding at RM1.2 billion for both the group’s 2016 and 2017 financial years.
At the same time, it is also believed that Qatar, which has a considerably stronger financial position among the members of the Gulf Cooperation Council as well as a major client of the group in the Middle East, will continue with the execution of ongoing infrastructure construction projects and facilities for the 2022 Fifa World Cup, which could be good news for Eversendai
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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