News

• More from MRT2… SunCon has been awarded a RM52.2m contract from the MMC-Gamuda JV for the advanced construction works of viaduct guideway between Kg Muhibbah and Serdang Raya for the MRT2. The works involve construction of 19 nos pile caps, 122 bored piles, realignment of Sg Midah and temporary decking to be completed by Sept 2017.

• ...and LOI from parent co. Separately, SunCon also received 2 Letter of Intents (LOI) for contracts in Medini, Johor from its parent-co, Sunway. The LOIs consist (i) 88 units of office shop lots for RM56.5m over 20 months and (ii) a retail complex worth RM100m for a period of 13 months.

Comments

• Surpassing its target. With these recent contracts, SunCon’s YTD job wins currently stands at RM2.6bn, surpassing management’s earlier target of RM2.5bn. This sum has matched the full year orderbook replenishment for FY15 and is closing in on the previous high of RM3bn achieved in FY13. SunCon’s orderbook currently stands at a record RM5bn, implying a healthy cover of 2.6x on FY15 revenue.

• Jobs are still flowing. Although SunCon did not manage to secure any packages of the SUKE and DASH and has dropped out of the Pan Borneo Highway bids in Sarawak, these recent contract wins indicate that its job flow pipeline continues to remain healthy. Looking ahead, SunCon has been prequalified for the LRT3 and we reckon that it has a decent chance to secure the job given its experience with the LRT extension and MRT1.

Risks

• Given its all-time high orderbook, execution is a potential risk area to watch out for.

Forecasts

• As YTD job wins of RM2.6bn 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 RM316m (RM0.24/ share).

Source: Hong Leong Investment Bank Research - 27 Sep 2016