News

• Secures smallish job. SunCon has been awarded a RM66.3m contract by Zecon Medicare involving electrical services, air conditioning and mechanical ventilation system for the Children’s Specialist Hospital at University Kebangsaan Malaysia in Cheras. The job is scheduled for completion on 30 April 2018.

Comments

• Job wins building up. With this recent job in the bag, SunCon’s YTD job wins currently stands at RM2.1bn. Despite being only at the mid-year, YTD job wins have already made up 79% of the full year sum recorded in FY15 (RM2.6bn). We estimate SunCon’s orderbook to stand at RM5.1bn, translating to a healthy cover ratio of 2.7x on FY15 revenue.

• Gunning for more. Management is upbeat that it can secure RM2.5bn worth of new contracts this year (82% achieved YTD). It has tendered for the Pan Borneo Highway which should rake in at least another RM300m based on a 30% stake at a conservative RM1bn contract sum. Apart from that, it has been prequalified for the SUKE (RM4bn) and DASH (RM4bn) and is undergoing prequalification for the LRT3 (RM9bn). There are also several private sector jobs including those from its parent-co, Sunway, which could possibly contribute another RM300-400m.

Risks

• Orderbook replenishment coming below its burn rate.

Forecasts

• As YTD job wins of RM2.1bn is within our full year replenishment target of RM2.8bn, we retain our earnings forecast.

Rating

• Maintain BUY, TP: RM1.84

• SunCon is a well-managed company with commendable execution capability, putting it in a polar position to ride on the robust flow of mega contracts expected this year.

Valuation

• Our TP of RM1.84 is based on an 18x P/E multiple applied to mid-CY17 earnings. We continue to like SunCon for its superior ROE (FY16f: 23%) and healthy balance sheet with a net cash position of RM298m (RM0.23/ share).

Source: Hong Leong Investment Bank Research - 28 Jun 2016