SunCon's core net profit for the 1H2023 amounted to RM60.8mn, falling short of both ours and the street's forecast at 42.2% and 41.5% respectively. The deviation against our forecast was mainly due to the higher-than-expected depreciation and tax expenses. Hence, we revised our assumption and earnings forecast lower by 11%/5% for FY23/FY24F. Nonetheless, our optimism on SunCon's orderbook remains intact. The outstanding orderbook has reached RM5.8bn, bolstered by the acquisition of new orders totalling RM1.6bn up to June 2023. Maintain our BUY recommendation with lower TP of RM1.99.

• Below expectations. 1HFY23 core net profit of RM60.8mn (-9% yoy) was below ours and consensus expectations accounting for 42.2% and 41.5% of full year estimates, respectively.

• Dividend. SunCon declared a first interim dividend of 3.0sen per share in 1H23 which is equal to 1HFY22 DPS. We project the company to pay a total of 6sen DPS in FY23 which translates to yield of 3.3% based on current market price.

• QoQ. SunCon’s 2QFY23 revenue improved by 15.7% QoQ to RM604.1m as revenue improved in all segments. In tandem, the group recorded higher PBT of RM42.3mn (12.7% QoQ) and core net profit of RM33.5mn (13.9% QoQ).

• YoY/ YTD. SunCon observed an increase of 8.3% in revenue and 3.8% in core net income YoY. Notably, the precast segment stood out with an impressive 96.3% surge in revenue, reaching RM68.5mn. This growth was largely attributed to advancements in ICPH projects. Despite these gains, profit margin remained constant, as higher depreciation on the ICPH plant offset the gains.

• Outlook. Our outlook remains optimistic, with the commencement of the ICPH plant, expected to significantly contribute to the precast segment. This further bolstered by the Singapore Housing and Development Board's (HDB) plan to introduce an additional 6,700 flats in 3Q2023. Separately, SunCon was recently selected as one of the successful applicants for the Corporate Green Power Programme (CGPP), with quota of 29.9MW. This could potentially lead to orderbook replenishment of circa RM120-140mn.

• Forecast. We revised down our FY23/FY24F earnings forecast by 11%/5% as we increased our depreciation, finance cost and operation cost assumptions.

• Our call. Following the earnings revision, our TP is lowered to RM1.99 (from RM2.08). Our valuation is based on FY23F EPS of 11.7sen and 5-years mean PER of 17x. We maintain a BUY call and continue to like SunCon due to: (i) strong tenderbook in the pipeline (RM27bn), ii) strong support from parent company, and (iii) beneficiary from healthy precast demand.

Source: BIMB Securities Research - 24 Aug 2023