Investment Highlights

• We maintain our HOLD call, forecasts and FV of RM2.01 for Sunway Construction (SunCon) based on 15x FY18F EPS, in line with our benchmark forward PE of 14-16x for large-cap listed construction companies.

• SunCon 1HFY17 net profit came in within expectations at 51% and 46% of our and consensus full-year forecasts respectively.

• 2QFY17 PBT rose 12% YoY to RM43mil from RM38mil, while 1HFY17 PBT increased 15% YoY to RM87mil. The higher profits were mainly driven by improved construction margins in its overall projects. Additionally, there was a reversal of doubtful debt recognised in 2QFY17.

• These were partially offset by weaker performance from the precast segment largely due to slow offtakes from key customers (which are only expected to pick up from FY18F). Nonetheless, precast margins stabilised. The precast margins were hurt by one-off costs related to the closure of the Tampines plant previously.

• We continue to like SunCon for: 1) its strong outstanding order book of RM4.3bil (including RM1bil worth secured YTD), which will keep it busy for the next 2-3 years; 2) it strong prospects for new job wins underpinned by various mega infrastructure projects, particularly the rail-related ones, in the market; and 3) its proven track record with various blue-chip clients in the market.

Source: AmInvest Research - 25 Aug 2017