Results

• SunCon reported 4QFY17 results with revenue of RM748m (+52% QoQ, +35% YoY) and earnings of RM32m (-8% QoQ, -1% YoY). This brings full year FY17 revenue to RM2.1bn (+16% YoY) and earnings at RM138m (+12% YoY).

Deviation

• FY17 earnings were within our expectations at 97% of full year forecast but below consensus at 91%.

Dividends

• 4 sen dividend declared bringing the full year sum to 7 sen (FY16: 6.5 sen).

Highlights

• Construction performs strongly. Construction revenue increased 29% YoY for FY17 due to higher progress from jobs such as Parcel F Putrajaya and MRT2. The finalisation of accounts for MRT1 also boosted revenue. PBT grew by a much stronger magnitude of 54% over the same period thanks to YoY margin expansion from 6.4% to 7.6%.
• Record high orderbook. SunCon’s FY17 new job wins stood 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 in early FY17. With the strong job wins, SunCon’s orderbook now stands at a near high of RM6.1bn, implying a strong cover of 3x on FY17 revenue. For FY18, SunCon managed to secure RM456m YTD and should be on track to meet its target of RM2-2.5bn.
• Precast comes in lower. Both FY17 revenue and PBT for the precast division fell 49% and 53% YoY. This was due to slow construction progress by the main contractor (i.e. SunCon’s client). PBT margin nonetheless remained relatively stable at 19% in FY17 vs 20.3% 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: RM2.85
• 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 is based on a 22x P/E target tagged to FY18 earnings.
• We reckon that our premium valuation yardstick for SunCon is justified given (i) its superior ROE of 28% which is more than double of its peer’s average and (ii) healthy balance with net cash position of RM353m (RM0.27/ share).

Source: Hong Leong Investment Bank Research - 27 Feb 2018