Big contracts don’t always mean big returns

WINNING large contracts is usually a good sign, as they are expected to lead to healthier profits.

However, there are always risks involved in execution.

This week, two companies announced significant contract wins, substantially expanding their order books and potentially supporting future earnings – provided execution goes smoothly.

Malaysian Resources Corp Bhd (MRCB) has been awarded a RM2.94bil contract to build the Shah Alam Sports Complex.

Notably, this exceeds the group’s earlier guidance of RM1.5bil due to an expanded scope of work.

With this award, MRCB’s order book rises to RM5.4bil, bringing it closer to its RM6bil target for 2025.

Then, there is Eversendai Corp Bhd, known for securing large-scale projects.

The group announced that it secured three new projects in the United Arab Emirates, India and Singapore, with a combined value of RM1.3bil.

The next challenge for both companies is to execute these projects efficiently to earn the big profits that investors are hoping for.

In the past, both companies have fallen short of delivering the kind of profits investors had anticipated.

MRCB’s profit track record has been uneven, largely due to the timing of project completions and revenue recognition cycles.

As for Eversendai, it has won numerous big jobs over the last few years, particularly from its key market in the Middle East.

However, despite securing contracts worth billions of ringgit, its profits too have not lived up to the promise those wins seemed to suggest.

Eversendai has previously cited a downturn in the oil and gas sector as a key reason why it faltered in the past, as that led to the underutilisation of its fabrication facilities – ultimately dampening its profitability.

With the inclusion of its latest projects, the group’s outstanding order book has reached a record RM6.6bil.

Will it deliver this time?

It all depends on how efficiently the company executes these projects – and whether unforeseen external factors once again come into play.