Investment Highlights

• We maintain our forecasts, but cut our FV by 20% to RM2.17 from RM2.70 and downgrade our call from BUY to HOLD. Our FV is based on 11x FY19 EPS (from 15x FY18 EPS previously) to factor in a lower benchmark forward target PE of 10-12x for mid-cap construction stocks (from 13-15x previously).

• The reduced multiples are to reflect the less promising prospects of the construction sector as the government is widely expected to put various ongoing and impending mega infrastructure projects under review on grounds of financial prudence.

• Meanwhile, Sunway Construction (SunCon) has been awarded by Alliance Parade Sdn Bhd (subsidiary of Sunway City Penang) the design and construction work for Sunway Medical Centre in Seberang Jaya worth RM180mil. The 180-bed hospital is expected to be completed within the next 31 months.

• We are positive on the latest development. YTD, SunCon has secured three key projects, boosting its YTD job wins to RM720mil and its outstanding order book to RM6.3bil (Exhibit 1). We are keeping our forecasts that assume job wins of RM2.0bil annually in FY18-20F, primarily from parent Sunway Bhd’s property projects.

• We are neutral on SunCon’s outlook. Its earnings visibility is good with a sizeable outstanding order book coupled with potential new jobs from parent Sunway Bhd. However, like its peers in the sector, the prospects of winning large public infrastructure work packages have somewhat dimmed over the immediate term, as the government has announced that it would review the country's development plans.

Source: AmInvest Research - 15 May 2018