Investment Highlights

• We maintain BUY on Sunway Construction (SunCon) with an unchanged fair value (FV) of RM1.84/share. Our FV is based on 14x FY23F PE, in line with our benchmark for large-cap construction stocks. We also ascribe a 3% premium to reflect our 4-star ESG rating.

• SunCon has signed a letter of acceptance issued by Malaysia Rapid Transit System for the proposed construction and completion of Package 1B advance works for station and viaducts together with Package 5 terrestrial viaducts and ancillary structures for Rapid Transit System between Johor Bahru and Singapore (RTS Link).

• The total contract sum for both packages won are RM605mil, and will be carried out over a period of 26 months until 2Q2025. We estimate SunCon’s EBIT accretion at RM20mil per year (or 9% of FY24F group EBIT) from the contract.

• This is SunCon’s 2nd and 3rd package for RTS Link. SunCon was awarded Package P2A worth RM112mil back in 1QFY22, which has reached 7% completion as at Dec 2022.

• YTD projects secured (including the RM1.7bil data centre job) amounts to RM2.4bil, raising its estimated order book to RM5.4bil, +2% from RM5.3bil as at Dec 2022. However, we make no changes to our FY23F-25F earnings as this project is within our replenishment assumption of RM2.9bil.

• We may raise our earnings estimates if (i) SunCon wins the main package for MRT3, which is expected to be awarded in 2H2023; or (ii) Vietnam power plant project worth RM6bil that SunCon will commence after Toyo achieves financial close.

• Risks include (i) eroding margins from higher-than-expected building material costs and labour shortages; and (ii) shelving of mega projects.

• SunCon currently trades at an attractive FY23F PE of 13x, which is 24% below its 5-year average of 17x.

Source: AmInvest Research - 24 Mar 2023