• Upgrade to BUY (TP: RM2.88). Sunway Construction (SunCon)’s FY23 Core Net Profit of RM145.8mn (+5.1% YoY) made up 101.3% of our estimate, hence deemed in line with our expectation. Meanwhile, revenue recorded a 23.9% YoY growth, reaching RM2,671.2mn for the same period, attributed to the progress in construction activities in India and increased contributions from sustainable energy projects, which also boosted by engagement in new projects and an uptick in its Integrated Construction & Prefabrication Hub (ICPH) production. No changes to our earnings estimate but as the price has reached our valuation, we upgrade to BUY on SunCon, with higher TP of RM2.88 (from RM1.99), based on FY24F EPS of 12.8sen and PER of 23x. This implies a +0.5 Std.Dev. above its 5-year historical mean PER of 19.5x.

• Key highlights. In 4QFY23, there was significant growth revenue by an impressive +73.1% YoY increase to RM871.5mn, while net profit showed a modest improvement of 6.4%, reaching RM60.7mn compared to RM56.3mn YoY, thanks to accelerated progress in newer projects. As FY23 concludes, SunCon's outstanding order book maintains at RM5bn level, and the new order book target is set to increase within RM2.5bn-RM3.0bn, surpassing its usual goal of RM2.0bn. We anticipate that these new orders will stem from their active participation in various tenders related to warehousing and semiconductor manufacturing, as well as internal projects from the parent's company. This expectation is further supported by their substantial tender book of RM26.2bn. SunCon declared a second interim single-tier dividend of 3.0sen, resulting in a cumulative dividend of 6.0sen for the FY23, which translated to 42.5% dividend yield.

• Earnings Revision. We maintain our earnings for FY24F-FY25F.

• Outlook. SunCon has experienced a growing contribution from projects based in Johor, particularly driven by data center and the Johor RTS Link. This prompts us to consider their potential involvement in upcoming projects namely the Johor LRT and HSR. Furthermore, the precast segment is expected to gain from Singapore's Housing Development Board, which plans to launch 19,600 Build-To-Order (BTO) flats in 2024. In anticipation of earnings boost, SunCon is positioned for growth through the accelerated expansion of its orderbook and a robust pipeline of tenders. The company also benefits a strong support from its parent company, ensuring consistency of orderbook replenishment.

Source: BIMB Securities Research - 21 Feb 2024