Analysts see further uncertainties ahead for Eversendai
KUCHING: Eversendai Corporation Bhd ( Eversendai) could see further uncertainties ahead as the potential impairments in the fourth quarter of 2016 (4Q16) and financial troubles would likely hinder its prospects, analysts say.
HLIB Research, the research arm of Hong Leong Investment Bank Bhd said while Eversendai is backed by a record orderbook of RM2.7 billion , strengthening US dollar and undemanding valuations, any upside would likely be capped by potential impairments in 4Q and payment concerns on its liftboats.
“Eversendai is undertaking two liftboat contracts worth US$ 180 million via an related party transaction ( RPT). The liftboats are currently 50 to 80 per cent complete with a 20 per cent upfront payment and 80 per cent upon completion.
“As the liftboats have yet to secure any charters, there are concerns on payment risk (and potential impairment) if its financing does not materialise,” it added.
Meanwhile, on Eversendai’s third quarter of 2016 ( 3Q16) performance, HLIB Research pointed out that it is negatively surprised to see the quarter- on- quarter (q- oq) and year- on-year (y- o-y) topline decline considering its sizable orderbook.
Of note, Eversendai reported its 3Q16 revenue of RM317.4 million (down 12 per cent quarter- on- quarter, and down 21 per cent year-on-year) and core earnings of RM3.9 million (down 76 per cent yo-y, and down 31 per cent q- o- q).
The research team noted that Eversendai’s cumulative first nine months ( 9M) core earnings (adjusted for forex and impairment) totalled RM42.9 million (an increase of 40 per cent y- o-y).
It pointed out that the Malaysian operation suffered a slight loss (down RM1 million for pre-tax profit) in 3Q.
“This segment has been suffering from razor thin margins since the beginning of the year attributed to insufficient topline to cover its fixed cost.
“Management expects things to improve once work on PNB118 ( RM328 million) commences,” HLIB Research said.
Aside from that, it highlighted that Eversendai’s oil & gas (O& G) division has continued to bleed, with the division slipping further into the red in 3Q as its pre-tax profit ( PBT) declined RM7 million.
It noted that this was due to delays in securing financing, progress on its two liftboats was set back while fixed cost continued to be incurred. The research team believed that the group could see further impairments from its projects overseas.
It said, “We understand that there could be a potential impairment of at least RM10 million relating to a project in Dubai that may be booked in 4Q.”
Overall, HLIB Research downgraded its recommendation of the stock to ‘hold’. It also reduced its forecast of the stock by 21, 17, and 15 per cent for FY16 to FY18, to reflect lower margins for Eversendai’s Malaysian and O& G operations.