SunCon was awarded the Sunway Medical Centre job (RM180m) in Penang from its parent-co, Sunway. YTD job wins now total RM722m, bringing orderbook to RM6.3bn (3x cover ratio). Overall industry job wins could slow down given the review of mega projects by the new government. We take some comfort that SunCon can still leverage on Sunway for jobs. Earnings unchanged but we may lower this when 1Q results are released this Thurs. Maintain BUY but TP lowered from RM2.85 to RM2.59 as we cut our P/E target from 22x to 20x in view of the potential slowdown in industry job flows.

NEWSBREAK

SunCon announced that it has been awarded a RM180m contract from its parent-co, Sunway (BUY, TP: RM2.30) to build the Sunway Medical Centre (Phase 1) in Seberang Jaya, Penang. The job will commence in May 2018 and is scheduled for completion by Dec 2020 (slightly above 2.5 years).

HLIB’s VIEW

Job wins chugging along well but... With this contract in the bag, SunCon’s YTD job wins currently stands at RM722m. This brings its orderbook to RM6.3bn, implying a healthy cover of 3x on FY17 revenue.

…cautious on overall slow industry job flow. Management is gunning for RM2- 2.5bn in new job wins for FY18. With GE14 done and dusted, the new administration has stated that it will review the terms of mega contracts to ensure that they are fair. We reckon that this will ultimately lead to either project cancellation or delays (as they are reviewed). While this will impact job flows to SunCon, we take some comfort in knowing that this will be partially buffered by contracts from its parent-co. Thus far, the bulk of its RM722m YTD job wins have been from Sunway.

Forecast. Unchanged for now but we are likely to lower our FY18 job win target which currently stands at RM2.7bn. 1QFY18 results are due to be released on 17 May.

Maintain BUY, TP: RM2.59. In view of the potential job flow slowdown for the overall construction sector, we lower our P/E multiple for SunCon from 22x to 20x which is still tagged to FY18 earnings. This lowers our TP from RM2.85 to RM2.59. Nonetheless, our valuation yardstick for SunCon still remains at a premium to its peers given its (i) superior ROE of 28% which is more than double that of its peers and (ii) net cash position of RM353m (RM0.27/share).

Source: Hong Leong Investment Bank Research - 15 May 2018