SunCon announced that it has been awarded a RM100m building contract from Sunway for development of office and serviced apartments that are located next to Sunway Velocity Medical Centre. The works are expected to be completed by end of April 2021. This construction job win brings the YTD sum to RM1.5bn which is consistent with management guidance 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 within our orderbook replenishment assumption of RM1.5bn. Maintain BUY rating with unchanged TP of RM1.86 derived from 16.5x P/E multiple on FY19 earnings.

NEWSBREAK

Office and apartment contract. SunCon announced that it has been awarded a RM100m building contract from Sunway (BUY, TP: RM2.13) for development of office and serviced apartments that are located next to Sunway Velocity Medical Centre. The works are expected to be completed by end of April 2021.

HLIB’s VIEW

Job win from parent-co. This construction job win brings the YTD sum to RM1.5bn which is consistent with management guidance. Total 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 continued slowdown of property market which results in less building jobs from external developers.

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 within our orderbook replenishment assumption of RM1.5bn. We assume no further contract win for the rest of the year and maintain our orderbook replenishment assumption.

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. SunCon remains as our top pick among local construction peers due to (i) healthy balance sheet; (ii) pure construction play and (iii) strong support from parent-co which enable it to ride through current down cycle.

Source: Hong Leong Investment Bank Research - 6 Dec 2018