News

• Warehouse job from Nippon. The 50:50 Taisei-SunCon JV has been awarded a RM139.8m contract to build the new warehouse for Nippon Express in Shah Alam over a period of 22 months (completion in 3Q19).

Comments

• Surpassing its target. Accounting for SunCon’s 50% stake in the JV would bring its effective share of the contract to RM69.9m. 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 sum has exceeded management’s initial guidance earlier this year of RM2bn.

• Record high orderbook. Over the past 3 months, SunCon has managed to secure 2 sizable jobs which are the LRT3 (RM2.2bn) and PPA1M (RM582m). Coupled with several other smaller contracts announced, SunCon’s orderbook has surged by >50% to an all-time high of RM6.8bn (compared to RM4.3bn as of 2QFY17). This implies a strong cover of 3.8x 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, putting it in a polar position to ride on the construction upcycle.

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 - 15 Nov 2017