Investment Highlights

• We maintain our BUY call, forecasts and FV of RM2.70 based on 15x FY18F EPS, in line with our benchmark forward PE of 14-16x for large-cap listed construction companies.

• SunCon's 9MFY17 net profit came in broadly within expectations at 73% and 71% of our and consensus full year forecasts respectively.

• 9MFY17 PBT rose 12% YoY (PATAMI +16% YoY), driven by good progress work billings for two of its key projects, i.e. Package V201 of MRT2 and Parcel F of Putrajaya and the improvement in overall margins, and we believe a better absorption of overheads on top-line expansion.

• 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) as well as completion of several projects. Nonetheless, precast margins remained stable on reduced expenses following the return of the Tampines plant to the government in 2QFY17.

• SunCon’s YTD job wins and outstanding order book currently stand at RM3.96bil (which is fairly consistent with our FY17 full-year assumption of RM3.9bil) and RM6.8bil (Exhibit 2) respectively. Our forecasts assume its job wins in FY18-19F to normalize to RM2bil annually.

• We continue to like SunCon for: 1) its good earnings visibility backed by a sizeable outstanding order book which will keep it busy for the next 2-3 years; 2) its 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 - 21 Nov 2017