SunCon announced that it has been awarded a RM781m building contract from Tenaga for construction of TNB Campus. Works are expected to be completed within 26 months. Outstanding orderbook currently stands at RM6.0bn which translates to 2.9x cover on FY17 revenue. Adjust FY19-20 earnings forecast downwards by 2.4% and 5.6% respectively after we adjusted FY19 orderbook replenishment target to RM1.5bn (from RM2.0bn), inline with management’s latest guidance provided. Maintain BUY rating with lower TP of RM1.81 derived from 16.5x P/E multiple on FY19 earnings.

NEWSBREAK

TNB campus contract. SunCon announced that it has been awarded a RM781m building contract from Tenaga (BUY, TP: RM16.40) for the construction of TNB Campus at part of Lot No.490 and Lot No.6266, Jalan Bangsar, Kuala Lumpur. The scope of work includes construction of four office towers, one convention centre, one interactive centre for electricity, child care facility and other facilities. The works are expected to be completed within 26 months.

HLIB’s VIEW

First job win of the year. This is the first job win of the year and total outstanding orderbook currently stands at RM6.0bn which translates to 2.9x cover on FY17 revenue. Securing this sizable job did not entirely come as a surprise as SunCon previously undertook the pilling works for the same project. 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. Management recently unveiled its FY19 orderbook replenishment target of RM1.5bn (FY18 actual achieved: RM1.55bn), below its RM2bn annual target that was usually guided pre-GE14. As such, we take this opportunity to lower our assumption from RM2.0bn to RM1.5bn to be inline with management’s guidance. This result in a downward revision to FY19-20 earnings forecast by 2.4% and 5.6%. 4QFY18 results are due to be released on 25th February.

Maintain BUY, TP: RM1.81. Following the earnings cut, our TP is reduced marginally from RM1.86 to RM1.81, based on an unchanged 16.5x PE multiple tagged 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 enables it to ride through current down cycle.

Source: Hong Leong Investment Bank Research - 20 Feb 2019