KUCHING: Kenanga Investment Bank Bhd (Kenanga Research) is maintaining its ‘Underperform’ call on Eversendai Corporation Bhd (Eversendai) due to the continued delay in the delivery of its lift boats.
In a report, Kenanga research detailed that Eversndai’s first lift boat which was initially schedule for delivery in the third quarter of 2017 (3Q17) has been delayed to 1Q18 as certification and commission of the lift boat is more stringent than Sendai has expected.
“The second lift boat which is at circa 55 to 60 per cent completion and scheduled for delivery by the first half of 2018 (1H18) may be delayed to a later date given the longer than expected duration for certification as well,” added the research arm.
While it is understood that Eversendai’s lift boat client – Vahana Holdings Bhd (Vahana) – has already obtained conditional financing for the first lift boat, the research arm guides that there is still a risk of impairment in FY19 should Vahana fail to secure a charter within 12 months of the boat being ready for delivery as banks will only release payments to Eversendai once a charter contract is secured.
Additionally for the second boat, the research arm is also weary that there is potential of it failing to secure financing, which could lead to the raising of risk of impairments for Eversendai.
With this in mind alongside Eversendai’s existing high gearing of 1.0 fold and historically volatile earnings, Kenanga Research has decided to maintain its ‘underperform’ rating on the stock with a lower target price of RM0.740 as they base their valuations at the lower end of their applied small-mid cap player’s range – 8.0 fold FY18E price earnings ratio.
That being said, Sendai has started off 2018 well with the acquisition of two new contracts worth RM272 million in Dubai – one Za’abeel mix-used developed, and the Address Tower Residence IL Primo luxury high-end residential tower.
Accounting for 15 per cent of Kenanga Research’s FY18E replenishment target of RM1.8 billion, the wins are within expectations and assuming a 36-month span for the contracts coupled with profit before tax (PBT) margins of 6 per cent, the research arm has guided that they are expecting the projects to contribute circa RM4.1 million per annum to Sendai’s bottom-line.
Eversendai’s current outstanding order-book stands at circa RM3.5 billion and provides earnings visibility for the group for the next 1 to 1.5 years.