News

Sunway has been awarded a RM222m contract for Package 2 of the construction and completion of piling and substructure works for the proposed mixed commercial development for Lot 185 and Lot 167 (K) at Persiaran KLCC from Cititower S/B (JV between KLCC (Holdings) S/B and QD Asia Pasific Ltd). The project is expected to be completed within 82 weeks (20.5 months) of site possession.

Comments

2nd KLCC order... After winning the RM304m 6-level basement car park order from KLCC (refer to our report “Parking RM304m order” dated 20 Mar-13), Sunway’s job wins momentum continued by winning another contract from the same client within the same area.

The latest substructure project makes up 17% of FY12’s construction revenue and 7% of its previous outstanding order book of RM3.2bn. YTD, Sunway has won 4 projects worth RM1bn, making up 68% of our annual order book replenishment assumption of RM1.5bn for FY13.

1.2 sen/share... Assuming a net margin of 5%, this project translates to ~0.9 sen/share (FD: ~0.7 sen/share) for Sunway.

Earnings visibility... The latest project win will lift its external outstanding order book to RM3.4bn (see Figure #1), translating to 2.7x FY12’s construction revenue.

Risks

Execution risk; Regulatory and political risk (both domestic and overseas); Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

Unchanged as the order is already part of our annual order book replenishment assumption of RM1.5bn for FY13.

Rating

BUY In view of recent price correction and more than 10% upside from our TP, we upgrade Sunway to a BUY.

• Positives: (1) Acquiring strategic land bank. (2) Deep values and is still trading at a discount to its peers. (3) Integrated construction/property business model.
• Negatives: (1) Slower take-up for its property launches.

Valuation

• TP maintained at RM3.38 based on SOP valuation while our theoretical ex-rights TP works out to RM2.96

Source: Hong Leong Investment Bank Research - 30 Apr 2013