Eversendai’s headline net profit to normalise going forward
KUALA LUMPUR: Eversendai Corporation Bhd’s (Eversendai) investment in Technics Oil & Gas Ltd (Technics) has fully impaired, and as such analysts expect the group’s headline net profit to normalise going forward.
Given that Eversendai’s investment in 29.9 per cent-associate, Technics has been fully impaired, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) expect headline earnings for Eversendai to normalise in the subsequent quarters in the absence of fair value losses.
Maybank IB Research recalled that Eversendai had impaired a total of RM102 million in the first half of 2016 (1H16) on the back of Technics’ slump in share price and with Technics having put under judicial managementin May.
“We view this ‘kitchen sinking’ as positive for Eversendai, allowing it to refocus on growing its core segments,” the research arm said.
Meanwhile, Maybank IB Research highlighted that Eversendai has enjoyed a stellar year in terms of orderbook replenishment with RM1.53 billion of job wins year to date (YTD) 2016, compared to RM1.73 billion in 2015.
The research arm noted that coupled with a current tenderbook of estimated RM20 billion (structural steel and construction RM9 billion; oil and gas RM11 billion), the group is confident that its 2016 job wins could hit a record high of RM2 billion.
Maybank IB Research’s target job wins assumption for financial year 2016 (FY16) of RM1.3 billion is no longer realistic and the research arm lifted this to RM2 billion.
The research arm also increased both FY17/FY18 job win assumptions to RM1.5 billion each.
“This led to higher FY16/FY17/ FY18 core net profit forecasts by 15 per cent/36 per cent/33 per cent,” it said.
On receivables and unbilled amount on work done, Maybank IB Research pointed out that they have risen to RM1.62 billion endJune 2016 from RM861 million end-2014, a result of the payment structure for the two lift boats.
“Eversendai expects to deliver the first lift boat in 1H17,” it said.
The research arm added that net gearing remains high at 0.67-fold end-June 2016 compared to 0.32fold end-2014, due also to a smaller shareholders’ fund after 1H16’s RM102 million impairment.
Maybank IB Research expected net gearing to rise to 0.71-fold by end-2016 as Eversendai draws further on the group’s medium term note (MTN) to finance its lift boat contacts.
“Eversendai’s balance sheet strains should ease when it delivers the lift boats in 2017,” the research arm said.
All in, Maybank IB Research’s FY16-18 core net profit forecasts were raised by 15 per cent/36 per cent/33 per cent after increasing its FY16/FY17/FY18 job wins assumptionsto RM2 billion/1.5 billion/1.5 billion.
Reflecting Eversendai’s high gearing and receivables, the research arm continued to peg the stock to 0.5-fold price to book ( P/B) (-1 standard deviaton (SD)).
“Selling on the stock seems overdone, reflecting a worst case scenario,” it said.
Maybank IB Research upgraded the stock to ‘buy’. KUALA LUMPUR: LBS Bina Group Bhd’s (LBS Bina) overnight rationalisation exercise will see the group’s construction business (held through 75 per cent-owned MITC Engineering) injected into 51.2 per cent-owned listed subsidiary, ML Global Bhd (MGB), “makes sense”, analysts say.
According to PublicInvest Research, MITC Sdn Bhd (whollyonwed by LBS Bina) and Lim Lit Chek, 75 per cent and 25 per cent shareholders of MITCE will dispose of the latter to MGB for a total sum of RM300 million, with both also undertaking to place out a cumulative 60 million MGB shares to independent third party investors, to maintain the minimum 25 per cent public shareholding spread.
MITCE will be disposed at an implied profit-to-earnings ratio of 14.35-fold based on its trailing 12month profit after tax of RM20.91 million as at June 30, 2016, valuations which the research arm reckoned was fair based on the comparable industry average of 15-fold.
“The most obvious would be unlocking the value of the group’s construction business, though the most promising would be the potential the expanded MGB Group now has in accessing larger-scale business opportunities and tendering for external construction works,” PublicInvest Research said.
It added management indicated that the enlarged MGB Group’s primary focus will still be housing at this juncture, with the expressed aim of expanding non-LBS Bina contributions (currently only circa 30 per cent).
PublicInvest Research noted that post-placement exercise, LBS Bina will end up holding a 56.4 per cent stake in MGB, which suggests an immediate “loss” of circa three to four per cent from what the group could have earned from owning the full 75 per cent in MITCE.
“We are not concerned however as we anticipate the greater degree of external works with potentially higher margins to mitigate this ‘loss’ adequately.
“Current order book and tender book is reportedly RM1.5 billion and RM630 million respectively.
“No disposal gains will be recognized as this reorganisation is being undertaken within the LBS Group,” it said.
In the group’s briefing to analysts and fund managers recently, PublicInvest Research noted management highlighted that with the recent land purchases, the group’s remaining land bank for future development has been expanded to 3,585 acres, with the KL/Selangor areas having the lion’s share of 46 per cent (from 21 per cent just a month ago).
We view this ‘kitchen sinking’ as positive for Eversendai, allowing it to refocus on growing its core segments. Maybank IB Research