News

• Secures school contract. SunCon has been awarded a RM268m contract to build the International School of Kuala Lumpur located off Jln Ampang Hilir. The contract was awarded by The Society for the International School of Kuala Lumpur with contract duration of 22 months.

• Scope of works. The school will be a Green Building Index Platinum rated building with 5 teaching facilities, main building with theatre, libraries, gym, kitchen & dining, performing arts centre, swimming pool, track, tennis and basketball court that can accommodate a max capacity of 2,500 students.

Comments

• Closing in on its target. With this recent job in the bag, SunCon’s YTD job wins stands at RM2.4bn, almost achieving management’s full year guidance of RM2.5bn. SunCon’s orderbook currently stands at a record RM4.9bn, implying a healthy cover of 2.6x on FY15 revenue.

• Selective on tenders. Our checks with management reveal that SunCon is no longer in the running for some of the major highway jobs such as the Pan Borneo, SUKE and DASH. Management felt that the margins on these jobs were not appealing from a risk-to-reward perspective.

• What’s next? We gather that there are several small to midsized contacts on the cards for the remainder of the year. Apart from that, SunCon has also been prequalified for the LRT3 and reckon that it has a decent chance to secure the job given its experience with the LRT extension and MRT1.

Risks

• Orderbook replenishment coming below its burn rate.

Forecasts

• As YTD job wins of RM2.4bn 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 - 23 Aug 2016