Eversendai Corporation Berhad: Can ROCE Turnaround Justify Multibagger Potential?

The Malaysian construction sector has long been a battleground for companies balancing growth with financial discipline. Eversendai Corporation Berhad (KLSE:SENDAI), however, presents an intriguing case: a firm that has turned a significant operational loss into profitability over three years, yet remains shackled by high leverage. For investors seeking multibagger returns—stocks that can multiply in value—Eversendai's journey offers a compelling mix of recovery and risk. At its core lies the question: Can improving returns on capital employed (ROCE) offset lingering debt concerns?

ROCE: A Turnaround in Efficiency

Eversendai's ROCE, a critical measure of how effectively a company deploys capital to generate profit, has risen by 48% over five years, according to recent analysis. While its trailing twelve-month (TTM) ROCE stands at 3.6% as of March 2025—still below the construction industry's 10% average—this marks a dramatic shift from years of negative ROCE. In 2022, the firm posted an EBIT loss of RM362 million, but by 2023, it stabilized with a RM13 million profit. This turnaround was driven by aggressive cost-cutting: general and administrative expenses dropped from RM282 million in 2022 to RM190 million in early 2025, while revenue held steady near RM1.2–1.5 billion annually.

The improvement is partly structural. Capital employed—the total assets minus current liabilities—has shrunk by 48% over five years, reflecting reduced reliance on underperforming assets. Yet this shrinkage raises a red flag: the company's current liabilities now account for 62% of total assets, signaling a heavy reliance on short-term debt. This precarious balance underscores the fragility of Eversendai's recovery.

Operational Improvements: Cost Control and Profitability

The firm's shift from loss to profit in two years is a testament to operational rigor. By trimming expenses and stabilizing revenue, Eversendai has achieved consistent EBIT margins of 1.2% (2024) and 1.7% (2023), albeit at a low absolute level. The RM36 million TTM EBIT as of March 2025, while modest, represents a meaningful rebound from previous freefalls.

Crucially, management has focused on core competencies. The company has exited non-core ventures and streamlined operations, freeing capital for higher-potential projects. This strategic focus aligns with the broader construction sector's demand for firms that can deliver value amid rising material costs and regulatory pressures.

The Debt Dilemma

Yet leverage remains Eversendai's Achilles' heel. Despite a 5.9% return on equity (ROE)—a low figure signaling inefficient capital use—the firm's debt burden persists. Analysts have repeatedly flagged its “meaningful debt burden,” with interest coverage ratios hovering near danger zones.

High leverage amplifies risks. A sudden rise in interest rates or a slowdown in construction demand could strain liquidity. The company's current liabilities, which now constitute over 60% of its capital structure, leave little room for error. For investors, this is a critical caveat: Eversendai's ROCE gains must outpace the cost of servicing its debt to sustain profitability.

Investment Considerations: Multibagger Potential?

To qualify as a multibagger—a stock that triples or more in value—Eversendai must demonstrate two things: sustainable ROCE growth and debt management discipline.

1. ROCE Upside:
2. If EBIT can grow from RM36 million to, say, RM100 million over five years (a 178% increase), even with flat capital employed, ROCE would jump to 10%, matching the industry average.

3. Further reductions in capital employed—through asset sales or operational efficiency—could push ROCE higher still.

4. Debt Mitigation:

5. The firm must refinance high-interest debt or reduce principal through retained earnings. A conservative target would aim to lower debt-to-equity from current levels (data not provided, but implied as elevated) to below 2.0x.

The risks are clear: a missed earnings target or interest rate hike could trigger a liquidity crisis. However, if management executes its strategy, Eversendai's shares—currently trading at a P/E of 15x (based on 2024 earnings)—could see significant upside.

Conclusion: A High-Reward, High-Risk Gamble

Eversendai Corporation Berhad is a stock for investors willing to bet on a turnaround story. Its ROCE recovery, while nascent, hints at operational discipline that could unlock value. Yet its debt-heavy balance sheet demands caution.

For aggressive investors with a long-term horizon, Eversendai presents a high-risk, high-reward opportunity. Monitor these key metrics:
- ROCE growth trajectory (target: >5% by 2026).
- Debt-to-equity ratio (aim: below 2.0x).
- EBIT margin expansion (target: 3–5% within two years).

The path to multibagger status is narrow, but for those who believe in Eversendai's operational revival outpacing its debt demons, the reward could justify the risk. Proceed with eyes wide open.