• Overview. SunCon’s 2Q20 core earnings plunged by 93.4% YoY to only RM4.5m, and brought 1H20 earnings to RM22m (-63.5%). Both revenue and earnings saw a decline as a result of 2.5 months of non-activity from the MCO and CMCO imposed by government.

• Key highlights. Suncon’s 2Q20 weak performance was largely impacted by both construction and precast segment. The impact of movement control order (MCO) for the whole 2Q20 witnessed lower progress billing for the both construction and precast division.

• Against estimates: Below. Suncon 6MFY20 core net profit of RM22m came in behind both our and consensus’ forecast at 25% and 12% respectively. The key setback was mainly from lower construction contribution amid the no activity for 2.5 months.

• Internal job award. Along with the results release, SunCon announced an internal group job award from Sunway South Quay Sdn Bhd (RM344m) and Sunway Belfield Sdn Bhd (RM403m). Project is expected to commence on 23th September 2020 with completion slated for June 2024. This brings total projects secured for the year to RM1.5bn

• Outlook. After incorporating new awards announced of RM865m, SunCon latest outstanding orderbook stands at c.RM6.4bn, this translates into a healthy level of 3.5x cover of FY20 revenue.

• Forecast. Given lower than expected 2Q20 results, we lower our margins assumption after adjusting for some timing delays. As such, we lower our FY20 by 12% whilst maintaining FY21 and FY22 earnings.

• Maintained our TP on SunCon at RM1.67 based on SOP Valuations, tagged to FY21 earnings. Nevertheless, SunCon’s share price weakened for the past month, and this prompt us to upgrade our rating to HOLD from SELL (Date: 22 May 2020). All in, we reckon SunCon will continue to be backed by its parent co and this could provide continuous earnings visibility to the group.

Source: BIMB Securities Research - 19 Aug 2020