• Overview. SunCon’s 3Q20 revenue advance advanced 4.2% YoY to RM419.4m and core earnings of RM31.8m (-21.8% YoY), bringing 9MFY20 core earnings to RM53.8m (-46.6% YoY) on the back of lower construction segment contribution. On qoq basis, both revenue and core earnings recovered due to the resumption of on-site activities from MCO impact.

• Key highlights. Despite higher construction contribution, blended margin fell amid the completion of key projects. On the other hand precast segment registered a profit due to recognition of higher margin projects.

• Against estimates: Below. Suncon’s 9MFY20 came in behind both our and consensus’ forecast at 61.8% and 70% respectively. The key setback was mainly from lower both construction and precast contribution during 2QFY20 due to MCO impact.

• Outlook. Despite the earnings shortfall, we maintain our FY20 earnings forecast as we expect construction contribution to escalate in 4Q20. Meanwhile, precast segment in Singapore was given green light to commence work by the Singapore government starting September 2020.

• Maintained our TP on SunCon at RM1.67 based on SOP valuation, tagged to FY21 earnings. We reckon SunCon will continue to be backed by its parent company and this could provide continuous earnings visibility to the group. Maintained HOLD rating.

Source: BIMB Securities Research - 20 Nov 2020