HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 27 Nov 2020, 11:01 AM


Sunway Construction Group - Exceeding Guidance

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SunCon announced the award of rooftop solar and Indian highway jobs worth a cumulative RM333m. This brings its job win for FY20 to RM2.3bn, beating guidance and market expectations. Its estimated outstanding order book now stands at RM6.0bn implying a healthy 3.4x cover ratio. We are expecting FY21 replenishment to fall between RM1.5-2.0bn given stable tender book. Increase FY21-22 earnings by 2-3%. Maintain BUY with slightly higher TP of RM2.11 based on 15x ex-cash PE multiple. Given its impressive execution track record, SunCon is well positioned to partake in pump priming initiatives. Support from parent-co, healthy balance sheet and orderbook level should provide some degree of resiliency during these trying times.


Highway and rooftop solar jobs. SunCon announced that it has received LOAs for 4 projects from Borneo Spring Sdn. Bhd. (Borneo), F&N and National Highways Authority of India (NHAI) worth a cumulative RM333.1m. Projects awarded by Borneo (RM1.3m) and F&N (RM16.8m) are of design, construct & commissioning scope of work for solar rooftop projects with a completion period of 12 months. As for NHAI, LOA is in relation to the highway construction from Meensurutti (Km. 98.433) to Chidambarm (Km.129.965.) in Tamil Nadu, India worth c.RM315m commencing in May 2021 lasting 24 months. Along with the award of highway construction, SunCon was also awarded the O&M contract spanning 15 years, worth RM0.9m p.a.


Beating guidance. These jobs bring SunCon’s FY20 job wins to RM2.3bn which exceeds management’s FY20 target of RM2.0bn. We deem this to be an impressive feat given the challenging business conditions in 2020 so far. We believe its geographical diversification as well as stable internal pipeline has been paying dividends in FY20 despite uncertain business conditions. Incorporating the new jobs, SunCon’s outstanding orderbook would increase to RM6.0bn, translating to a healthy 3.4x cover based on FY19 revenue.

Highway project details. Similar to the Thorapalli-Jittandhali project (RM508m) awarded earlier, this project will be undertaken by SunCon’s 60% owned JV with RNS. A hybrid annuity model (HAM) will be adopted whereby SunCon does not undertake traffic volume risks. NHAI will pay 40% of the project cost within first two years with the remaining 60% paid over remaining 15 years at a fixed annuity amount plus interest (RBI+ 3%). Based on previous guidance, PBT margin could come in above 10%. With a price escalation clause, we expect margin profile to be stable.

Forecast. Increase FY21-22 earnings by 1.7% and 2.8% after accounting for the job wins.

Maintain BUY, TP: RM2.11. Maintain BUY with slightly higher TP of RM2.11 after earnings forecast adjustment. TP is derived by pegging FY21 EPS to 15x ex-cash P/E. We believe given its impressive execution track record, Suncon is well positioned to partake in pump priming initiatives. Its healthy balance sheet with net cash position of RM0.30/share, strong support from parent-co Sunway Bhd and healthy orderbook levels should provide some degree of resiliency during these trying times


Source: Hong Leong Investment Bank Research - 30 Oct 2020

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