Investment Highlights

• We maintain our UNDERWEIGHT call, forecasts and FV of RM1.09 based on 10x FY20 EPS, in line with our benchmark forward P/E of 10x for large- and mid-cap construction stocks.

• The key message we gathered from Sunway Construction during a recent visit is the company is bracing itself for an extended lull period in the local construction sector, and it has acted on this belief by intensifying its pursuit of overseas construction jobs.

• The company spoke of the discrepancy between the news flow on the revival of mega projects in Malaysia and the reality on the ground at present. It said that there is still hardly any sizeable new public infrastructure project up for bidding in the open market currently. It did not appear to be too excited over the RM44bil East Coast Rail Link project, of which details on the job scope/work packages available to local contractors are still lacking. It will only be keen to participate in the project if higher-value jobs such as piling, relocation of utilities and elevated structures are offered to the local contractors.

• Having said that, subject to the final investment decisions by the project owners, locally, Sunway Construction may bid for a high-rise commercial property project by parent Sunway Bhd, a public hospital project (we gathered from sources, in East Malaysia) and a superstructure job within the Kuala Lumpur City Centre enclave. We estimate that these jobs could be worth about RM200mil each.

• Sunway Construction has stepped up its hunt for jobs outside Malaysia. In India, it has reopened an office staffed with full-time engineers relocated from Malaysia. The team is currently working on tenders for three toll-road projects worth about RM1bil each in India. In Myanmar, Sunway Construction, via a JV with local conglomerate Capital Diamond Star Group, stands a good chance of winning a building job worth RM200-300mil for the maiden phase of a mixed project in Mandalay jointly developed by the conglomerate and a Singaporean real estate group. Meanwhile, Sunway Construction has mobilised three boring rigs to Singapore (we believe, they would otherwise be underutilised in Malaysia) to better position itself in the piling sector in the city state.

Source: AmInvest Research - 12 Jun 2019