Investment Highlights

• We trim our FY20–21F net profit forecasts by 2% each, tweak our FV down by 2% to RM1.18 (from RM1.20) based on 10x revised FY20F EPS, in line with our benchmark forward P/E of 10x for large and mid-cap construction stocks. The earnings downgrade is to reflect construction job wins of only RM1.6bil in FY19 vs. our assumption of RM1.8bil. Maintain UNDERWEIGHT.

• Sunway Construction’s FY19 results came in within our forecast and consensus estimates.

• Its FY19 net profit fell 10% YoY due to lower construction profits (completion of the Parcel F building job in Putrajaya and the KL International School, coupled with the slow progress at the LRT3 project that makes up about a third of its outstanding construction order book), although partially mitigated by a recovery in profits from precast concrete products and higher interest incomes.

• In FY19, it secured new construction jobs worth RM1.61bil (vs. RM1.32bil in FY18) and new precast product orders worth RM160mil (vs. RM229mil in FY18). Its outstanding construction and precast product order books stand at RM4.9bil (Exhibit 2) and RM304mil respectively.

• No change to our assumptions on construction job wins of RM1.5bil and precast product order replenishment of RM200mil annually in FY20–22F. This is slightly more conservative as compared with Sunway Construction’s guidance for RM2bil new jobs (construction and precast product).

• During a recent meeting, Sunway Construction told us that given the slowdown in the local construction sector, it 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 - 21 Feb 2020