News

• Secures Putrajaya contract and… SunCon was awarded a RM152.4m contract for the EPCC at Gas District Cooling Plant 1, Precinct 1, Putrajaya involving (i) chilled water supply system and (ii) power generation system. The job was awarded by the Putrajaya Group and works will span from March 2017 to Aug 2018.
• …pilling works for SUKE and DASH. In a separate award, SunCon also managed to bag the bore pilling works subcontract for SUKE (RM18.1m) and DASH (RM15.8m).

Comments

• Notable projects bagged. We are positive on these contract wins as they represent (i) SunCon’s 8th project secured from the Putrajaya Group and (ii) subcontract works for SUKE and DASH even though SunCon did not manage to participate in SUKE and DASH at the main contractor level.
• Job wins coming in strong. With these 2 jobs in the bag, SunCon’s YTD job wins now total RM900m (FY16: RM2.7bn). Management is gunning for RM2bn in new job wins while we remain more optimistic at RM2.5bn, justified by the strong momentum witnessed thus far into the year. Its orderbook currently stands at RM4.9bn, translating to a healthy cover ratio of 2.7x on FY16 revenue.
• What’s in the pipeline? In terms of upcoming mega projects, we reckon that SunCon is a strong contender to participate in the LRT3 (RM9bn) in which awards are expected to start rolling in from 2Q17 onwards. Apart from that, job flows should continue to be sustained by development projects from its parent-co, Sunway, generally amounting to RM500-800m p.a.

Risks

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

Forecasts

• As YTD job wins of RM900m is within our full year target of RM2.5bn, we maintain our earnings forecast. Rating Maintain BUY, TP raised to RM2.00
• SunCon is a well-managed company with commendable execution capability across a wide array of project types, putting it in a polar position to ride on the ongoing robust flow of construction jobs.

Valuation

• Whilst there are no changes to our earnings forecast, we raise our TP from RM1.84 to RM2.00 as we roll forward our valuation horizon from FY17 to mid-FY18 at an unchanged P/E target of 18x.
• We reckon that our premium valuation yardstick is justified by its (i) healthy balance sheet with net cash at RM0.25/ share and (ii) ROE of 24% compared to the industry average of 11%.

Source: Hong Leong Investment Bank Research - 27 Mar 2017