Potential downtrend reversal amid Hammer candlestick formation and bottoming up indicators

• HLIB Institutional Research has a BUY rating on SUNCON with target price of RM1.59, or 17.8% upside. SUNCON is an integrated construction player with commendable execution capability, putting it in a prime spot to ride on the robust contract flows under the 11MP. Valuation is undemanding at 12.7x FY17 P/E (about 13% lower than its peers), supported by s uperb FY17 ROE of 23.6% (peers: 9.7%) and netcash of RM199m or 15sen per share (end Sep 15).
• Strong on job wins. SUNCON’s 2015 job wins currently stands at RM2.6bn, s urpass ing management’s target of RM2.5bn. Job wins in 2015 were also the 2nd highest in the last 5 years (highest being in FY13 at RM3bn). Its orderbook stands at RM4.3bn, implying a healthy cover ratio of 2.3x on FY14 revenue.
• Ready for the influx of jobs. Given its strong track record amongst the various government related entities (e.g. Prasarana, MRT Corp, Putrajaya Holdings and KLCC Group), we reckon that SunCon is in a polar position to ride on the impending construction upcycle under the 11MP. Track record wise, SUNCON is the only contractor that has experience with all 3 major public transport projects, namely the LRT, MRT and BRT.
• Likely to bottom up. After slipping 10% from 52-week high of RM1.45 (3 Dec) to a low of RM1.30 (11 Jan) before ending at RM1.35 yesterday, share price is gross ly overs old, triggering “Bottom -fis hing” s ignal. Chart wise, the Hammer candlestick and bottoming up indicators could indicate selling pressure is abating and technical rebound is in the pipeline.
• A decisive breakout above RM1.39 (61.8% FR) will spur prices higher towards RM1.45 and our long term target price of RM1.59. Key supports are RM1.30 and RM1.26 (100-d SMA). Cut loss at RM1.25.
• Attractive risk to reward ratio with 17.8% upside against 7.4% downside. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM1.35 given that the downside to the cut loss zone of RM1.25 is 10 sen (-7.4%) while the upside to the LT target of RM1.59 is 24 sen (+17.8%).

Source: Hong Leong Investment Bank Research - 12 Jan 2016