Investment Highlights

• We maintain HOLD on Sunway Construction (SunCon) with an unchanged fair value (FV) of RM1.69/share based on 14x FY23F PE, which also incorporates a 3% premium to reflect our 4-star ESG rating. The 14x PE is in line with our benchmark forward PE for construction stocks.

• During our recent engagement with the company, SunCon reiterated that most of its ongoing construction projects are near the completion stage, hence the impact from rising building material cost is manageable. Meanwhile, the group is renegotiating new tenders to cater for the higher prices.

• SunCon’s internal target of job wins (including the supply of precast products) is RM2bil in FY22F. Currently, its outstanding construction and precast product order backlogs stand at RM4.8bil (construction RM4.3bil; precast RM0.5bil).

• We maintain our overall order book replenishment assumption of RM1.7bil annually in FY22–24F. We believe that SunCon is a strong contender for infrastructure projects moving forward given its proven ability to compete under open bidding and strong balance sheet. Potential replenishment includes internal building jobs from its parent and sister companies under the Sunway Group and the above-ground portion of the MRT3 in 4QFY22.

• Meanwhile, the tender process for the MRT3 has begun with jobs expected to be awarded in 4QFY22. If there are no delays in land acquisition and sukuk issuance by MRT Corp to fund the project, advanced works could commence as early as 1QFY23.

• We also expect SunCon’s precast segment to contribute positively as construction activities in Singapore are normalising. The commissioning of SunCon’s 49%-owned integrated construction and prefabrication hub (ICPH) precast plant in Singapore in 3Q22 (which will increase its annual precast capacity from 126m3 to 200m3) will also improve FY23F earnings. According to Singapore’s Housing and Development Board, the supply of new build-to-order flats is projected to be ramped up to 23K per year in 2022F and 2023F (from 17K in 2021).

• Challenges faced by SunCon are: (i) rising building material costs led by an escalation/prolonged Ukraine-Russia war and/or or extreme lockdown measures; and (ii) delays/shelving of mega projects.

• We believe SunCon’s valuation is fair at 14x FY22–24F forward earnings.

Source: AmInvest Research - 9 May 2022