Suncon announced that it has been awarded RM352m building contract from Sunway for development of Sunway Velocity Two- Plot A project. The work is expected to be completed by end of December 2021. This construction job win brings the YTD sum to RM1.35bn and outstanding orderbook currently stands at c.RM5.7bn which translates to 3x cover on FY17 construction revenue. Maintain forecast as YTD job win is still within our orderbook replenishment assumption of RM1.5bn which is consistent with management’s guidance. Maintain BUY rating with unchanged TP of RM1.86 (16.5x FY19 P/E).

NEWSBREAK

Sunway Velocity Two contract. Suncon announced that it has been awarded RM352m building contract from Sunway Berhad (BUY, TP: RM2.15) for development of Sunway Velocity Two- Plot A project which comprises 2 serviced apartment of 53 storeys each, a podium carpark and a 28-storeys office block. The work is expected to be completed by end of December 2021.

HLIB’s VIEW

Job win from parent-co. This construction job win brings the YTD sum to RM1.35bn and outstanding orderbook currently stands at c.RM5.7bn which translates to 3x cover on FY17 construction revenue. We expect more jobs to come from its parent-co Sunway going forward due to reduction in government spending on public infrastructure projects and continue slowdown of property market which results in less building jobs.

Exploring foreign ground. Given the slowdown of domestic construction industry, SunCon is actively exploring for regional opportunities particularly in India and ASEAN region. The company will collaborate with foreign partners in contract bidding to take advantage of local expertise.

Forecast. Maintain as YTD job win is still within our orderbook replenishment assumption of RM1.5bn which is consistent with management guidance.

Maintain BUY, TP: RM1.86. Maintain BUY rating with unchanged TP of RM1.86. TP is pegged to 16.5x P/E multiple to FY19 earnings. Although the PE target may seem too high relative to its peers (10-12x for large cap players and 7-9x for small-mid cap players), the valuation is much reasonable if we take into account its net cash of RM0.35/share which implies an ex-cash PE target of 13.5x. We opine that SunCon deserves a premium valuation due to (i) healthy balance sheet; (ii) pure construction play and (iii) strong support from parent co which enables it to ride through current down cycle.

Source: Hong Leong Investment Bank Research - 14 Nov 2018