Results

• SunCon reported 3QFY17 results with revenue of RM491m (+18% QoQ, +29% YoY) and earnings of RM35m (-6% QoQ, +11% YoY). This brings cumulative 9M revenue to RM1.33bn (+7% YoY) and earnings at RM106m (+16% YoY).

Deviation

• 9M earnings were within expectations at 75% of our full year forecast but slightly below consensus at 71%.

Dividends

• None declared for the quarter (YTD: 3 sen).

Highlights

• Construction performs strongly. Construction revenue increased 17% YoY for the 9M period due to higher progress on projects such as the MRT2 and buildings in Parcel F, Putrajaya. PBT grew by a much stronger magnitude of 40% over the same period thanks to YoY margin expansion from 7.3% to 8.7%.
• Record high orderbook. SunCon’s YTD job wins stands at a record RM3.7bn (excluding RM212m stations job which is part of its main MRT2 viaduct package). This has significantly surpassed management’s initial target of RM2bn set earlier this year. With the strong job wins, SunCon’s orderbook now stands at an all-time high of RM6.8bn, surging 59% from its level in 2Q. This implies a strong cover of 3.8x on FY16 revenue.
• Precast comes in lower. Both 9M revenue and PBT for the precast division fell 41% and 40% YoY. This was due to slow construction progress by the main contractor (i.e. SunCon’s client). PBT margin nonetheless remained relatively stable at 20.7% in 9M vs 20.4% last year.

Risks

• Execution is a key risk to watch out given its all-time high orderbook.

Forecasts

• As the results were inline we maintain 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 TP of RM2.59 is based on a 20x P/E target 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 RM328m (RM0.25/ share).

Source: Hong Leong Investment Bank Research - 21 Nov 2017