Investment Highlights

• We maintain BUY on Sunway Construction (SunCon) with a higher fair value (FV) of RM1.92/share (vs RM1.84/share previously). 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.

• As YTD new job wins have exceeded our replenishment assumption of RM1.2bil (excluding the RM1.7bil data centre job), we raise our replenishment assumption to RM2.0bil for FY23F. This increases our earnings forecast for FY23F by 4%, FY24F by 6%, and FY25F by 5%.

• SunCon has signed a second supplemental agreement to include additional scope of works, i.e. main building works for the construction of commercial mixed development with car parks and amenities at Parcel CP2, Jalan Lagoon Selatan, Sunway South Quay, Bandar Sunway.

• The additional contract sum of RM607mil will be carried out over a period of 31 months until Oct 2025. We estimate the accretion to SunCon’s EBIT to be RM18mil per year (or 8% of FY24F group EBIT).

• YTD new project wins have risen above our earlier FY23F assumption to RM1.3bil, raising its estimated order book to RM6.0bil, +13% from RM5.3bil as at Dec 2022. Major contracts secured during the year included Package 1B and Package 5 for RTS Link worth RM605mil.

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

• Risks include (i) eroding margins from higher-thanexpected 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 - 5 Apr 2023