Highlights

Sunway Construction Group - Hitting the Mark

Date: 01/10/2020

Source  :  HLG
Stock  :  SUNCON       Price Target  :  2.08      |      Price Call  :  BUY
        Last Price  :  1.89      |      Upside/Downside  :  +0.19 (10.05%)
 


Suncon announced that it has been awarded two LOAs worth a cumulative RM416m for Velocity 2 and SMC4 projects. This brings its job win for FY20 to RM2.0bn, in-line with guidance. Including the new orders, outstanding order book increases to RM5.7bn implying a healthy 3.2x cover ratio. FY21 replenishment could fall in the RM1.5-2.0bn range given stable tender book. Increase FY21 earnings by 0.4% but cut FY22 by -0.5%. Maintain BUY with slightly higher TP of RM2.08 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 Sunway Bhd should provide some degree of resiliency during these trying times.

NEWSBREAK

2 contract awards. SunCon announced that it has received LOAs for 2 projects from Sunway Velocity Two Sdn. Bhd. and Sunway Medical Centre Sdn. Bhd. worth a cumulative RM415.9m. First project from Sunway Velocity comprises the proposed construction of two blocks of 39 storey serviced apartments, podium and basement works worth RM253.6m. Construction period will span a period of 34 months starting in Nov-2020. Second project entails a significant VO to its existing contract for Sunway Medical Centre Phase 4 amounting to an additional RM162.3m worth of works. The medical centre will open in two parts in Dec-21 and Aug-22.

HLIB’s VIEW

Guidance delivered. The job awards bring SunCon’s total job wins for FY20 to RM2.0bn which is in-line with management’s guidance at the start of the year. We deem this to be an impressive feat given the challenging business conditions in 2020 so far. Factoring in the new jobs, SunCon’s outstanding orderbook would increase to RM5.7bn, translating to a healthy 3.2x cover based on FY19 revenue.

Not expecting a cliff in FY21. Management is in the midst of finalising its targets for FY21. Nonetheless, we believe the RM1.5-RM2.0bn range remains an achievable target given its steady tenderbook (slightly north of RM8.0bn). For FY21, in addition to internal jobs, outstanding foreign tenders and RE jobs may come to the fore. Government pump-priming and speedy contract rollout should aid FY21-22 considerably. We have pencilled in RM1.7b of order book replenishment for FY21.

Forecast. Increase FY21 earnings by 0.4% but cut FY22 by -0.5% after recalibrating recognition timing.

Maintain BUY, TP: RM2.08. Maintain BUY with slightly higher TP of RM2.08 after earnings 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 and strong support from parent-co Sunway Bhd should provide some degree of resiliency during these trying times.

 

Source: Hong Leong Investment Bank Research - 1 Oct 2020

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