"We understand that Ever Glory could have a part to play in mega infrastructure projects such as Changi Terminal 5 superstructure M&E works, for which we believe the contract value could be over $500 million," state the analysts in their April 23 note, where they've raised their FY2027 order win projection from $400 million to $650 million.
Citing their own channel checks, most of the ongoing local infrastructure tenders continue to progress, unaffected by current macro factors, as public tender timelines are driven mainly by evaluation and due diligence processes.
"We also see higher possibility of Ever Glory securing key projects given the limited pool of M&E contractors with the required scale and track record locally, which should enhance pricing power, in our view," add Then and Lim.
Besides a bigger order book, the CGSI analysts believe Ever Glory will be able to increase its gross profit margin. For FY2026 to FY2028, they expect GPM of 15.8-16.5%, up from 15% now.
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While the Iran conflict has driven fuel costs higher, they limited impact on the company's existing projects given its relatively low direct exposure to fuel as an M&E contractor.
"Key inputs such as copper cable and freight rates have seen double-digit increases year to date – but we believe margins remain largely intact for Ever Glory as these costs are typically locked-in at the point of contract award."
In addition, they see potential margin upside to Guthrie Engineering’s existing projects - an established M&E contractor acquired by Ever Glory last July.
The upside will come from enhanced productivity and cost efficiencies, as well as stronger pricing discipline in upcoming tenders, where contractors are likely to factor in potential cost escalation for tender bids, providing additional margin buffer if cost pressures subsequently ease, according to the analysts.
And of course, the analysts see further growth potential with a tender pipeline of more than $4 billion as of February.
From an earlier valuation multiple of 12x, which is based on the average of M&E players in Singapore, Then and Lin now value the company at 15x FY2027 earnings, which is 1.5 sd above its historical 3-year mean and in line with regional beers.
The analysts believe this higher multiple is justified given Ever Glory’s robust earnings growth, alongside improving visibility on its margin resilience and order book expansion.
Possible re-rating catalysts include stronger-than-expected order wins, margin expansion, share buybacks and accretive M&As.
On the other hand, key downside risks include sharper-than-expected cost escalation and delays in project awards or execution.
Ever Glory shares as at 11.20 am, dropped 0.52% to trade at 95 cents. It is up 18.75% year to date.
