News

• Wins subcontract for BBCC... SunCon was awarded a RM74.8m subcontract from Ahmad Zaki for works at the Bukit Bintang City Centre (BBCC). The job scope involves earthworks, piling, diaphragm wall, reinforced concrete and PMU & PPU works over a period of 10 months.
• ...and LOI for precast. Apart from that, also received a Letter of Intent (LOI) from Chiu Teng Construction Co to supply precast components for the Clementi Neighbourhood 2 comprising 1,179 dwelling units for a contract sum of SGD20.9 (RM65.2m) over a delivery period of 21 months.

Comments

• Exceeding the target. SunCon’s YTD job wins now total a record RM3.7bn (excluding the MRT2 stations which are already accounted for as part of the main viaduct line). This amount has surpassed management’s initial guidance of RM2bn.
• Orderbook at a high. Over the last 2 months, SunCon has managed to secure 2 sizable jobs which are the LRT3 (RM2.2bn) and PPA1M (RM582m). Coupled with these 2 recent contracts announced, SunCon’s orderbook has surged by 56% to an all-time high of RM6.7bn (compared to RM4.3bn as of 2QFY17). This implies a strong cover of 3.7x on FY16 revenue, providing strong earnings visibility over the next 3 years.

Risks

• With its all-time high orderbook, execution would be the key risk to watch out for.

Forecasts

• Unchanged as YTD job wins of RM3.7bn has met our full year assumption. Any further job wins for FY17 would provide upside to our earnings forecast.

Rating

• Maintain BUY, TP: RM2.59
• SunCon continues to surprise us positively with its contract winning capability leading to a strong surge in its orderbook. We like SunCon as a well-managed contractor with strong execution ability.

Valuation

• Our unchanged TP of RM2.59 is based on a 20x P/E multiple tagged to FY18 earnings. We reckon that our premium valuation yardstick for SunCon is justified given (i) its superior ROE of 27% which is more than double of its peer’s average and (ii) healthy balance with net cash position of RM364m (RM0.28/ share).

Source: Hong Leong Investment Bank Research - 13 Oct 2017