SunCon announced that it has been awarded Medini hotel construction contract from Sunway Berhad with value of RM99.5m. The scope of works involves construction of a 14-level hotel block in Medini Iskandar. YTD job win stands at RM967.2m and outstanding orderbook currently stands at RM6.2bn which translates to 2.7x cover on FY18 revenue. Separately, SunCon is entering into a Memorandum of Understanding (MoU) with Myanmar conglomerate Capital Diamond Star Group (CDSG) to develop major infrastructure and construction projects in Myanmar over the next 3 years. Maintain forecast and HOLD rating with unchanged TP of RM1.81 derived from 16.5x P/E multiple on FY19 earnings.

NEWSBREAK

Medini hotel contract. SunCon announced that it has been awarded a contract from its parent-co Sunway Berhad (BUY; TP: RM2.18) with value of RM99.5m. The scope of works involve construction of a 14-level hotel block on Lot PTD 204060 in Medini Iskandar and is expected to be completed by third quarter of 2020.

MoU with Myanmar player. Separately, SunCon is entering into a Memorandum of Understanding (MoU) with Myanmar conglomerate Capital Diamond Star Group (CDSG) to develop major infrastructure and construction projects in Myanmar over the next 3 years. For internal projects undertaken by CDSG and its member companies, the participating interest for CDSG and Suncon in the joint venture (JV) shall be on a 65:35 basis while it will be divided on a 60:40 basis for external projects.

HLIB’s VIEW

Job from parent-co. This is the fourth job win of the year which brings the YTD sum to RM967.2m. Total outstanding orderbook currently stands at c.RM6.2bn which translates to 2.7x cover on FY18 revenue. Looking ahead, 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. We are not surprised with the MoU announcement as SunCon is actively exploring for regional opportunities particularly in India and ASEAN region given the current slowdown in domestic construction industry. The company will collaborate with foreign partners in contract bidding to take advantage of local expertise.

Forecast. Maintained as YTD job win is still within our FY19 orderbook replenishment target of RM1.5bn.

Maintain HOLD, TP: RM1.81. Maintain HOLD with unchanged TP of RM1.81, based on an unchanged 16.5x PE multiple tagged to FY19 earnings. While we like SunCon as a well-managed contractor, we reckon that valuations are fair at current levels.

Source: Hong Leong Investment Bank Research - 2 Apr 2019