• 4Q18 core earnings grew 14.3% qoq on higher progress billings while it surged 59.6% yoy on finalization of account for completed work.

• 2018 core earnings grew 15.4% and met ours and consensus estimates at 103% on major progress of on-going projects and improved margin ahead of a project handover.

• Outlook for the broader domestic construction industry remains sluggish amidst delays on mega projects. However, we believe SunCon is able to mitigate this by leveraging on Sunway Group’s ongoing and future development plans.

• Maintain HOLD with RM1.60 TP. We like the stock for its net cash position, 3-year earnings visibility and steady job flows from Sunway Group. Accumulate on dips.

Advanced by building segment

4Q18 core earnings grew 14.3% on higher progress billings recorded for the Sunway Carnival Mall Extension, Seberang Jaya. Meanwhile, it surged 59.6% yoy due to finalization of account for completed work.

Within expectations

2018 core earnings grew 15.4% yoy on better construction segment performance while it was inline with ours and consensus estimates at 103%. This was due to significant progress for major contracts (ie. KVMRT2, Putrajaya Parcel F, International School of KL and both Seberang Jaya’s Sunway Carnival Mall and Sunway Medical Centre). The margin was also uplifted by the finalization of account on a completed project.

Sluggish domestic outlook

Management anticipated the domestic construction sector to remain sluggish amidst on-going cost review on mega projects. To note, it has yet to be informed of the full impact to its RM2.2bn LRT3 work package. Nevertheless, SunCon maintains its orderbook target of RM1.5bn for 2019 as it expects to leverage on Sunway Group’s development plans after securing RM781m worth of contract from TNB last week.

Maintain Hold and TP of RM1.60

We maintain HOLD and TP of RM1.60 as share priced has rallied over 28% since our initiation. Despite sluggish industry outlook, we still like the stock for its solid fundamentals; it is in a net cash position while outstanding orderbook provide 3-year earnings visibility and we expect a steady job flow from Sunway Group in 2019.

Source: BIMB Securities Research - 26 Feb 2019