SunCon announced that it has been awarded three new contracts with combined value of RM497m. YTD job win stands at RM1.54bn, exceeding company’s target. Outstanding construction orderbook currently stands at RM5.9bn which translates to 2.8x cover on FY18 revenue. Increase FY19-21 earnings by 0.5%, 1.2% and 1.7% respectively after raised our FY19 orderbook replenishment target to RM1.6bn. Upgrade to BUY with higher TP of RM2.24 (from RM1.81) after earnings adjustment and we increase PE multiple to 20x (2 year mean: 19x) pegged to mid-FY19 earnings in view of improved domestic construction prospect due to revival of mega infrastructure projects such as ECRL and Bandar Malaysia. We like Suncon for its i) good execution track record; ii) strong support from parent-co Sunway Berhad (BUY, TP: RM2.18) and iii) strong balance sheet (net cash per share: 47 cents).

NEWSBREAK

RM497m worth of new contracts. SunCon announced that it has been awarded three new contracts with combined value of RM497m. The awards consist of: (i) construction of PETRONAS Leadership Centre in Bangi, Sepang commencing on August 2019 and is expected to be completed on March 2021; (ii) earthwork and piling works for mixed development project in Bandar Sunway commencing on July 2019 and is expected to be completed on March 2021; and (iii) subcontract for electrical and ELV services in mixed commercial development in Jalan Ampang commencing on July 2019 and is expected to be completed on May 2022.

HLIB’s VIEW

Exceeds replenishment target. These job wins bring the YTD sum to RM1.54bn, exceeded ours and company’s target of RM1.5bn. Outstanding construction orderbook currently stands at c.RM5.9bn which translates to 2.8x cover on FY18 revenue. We raised our FY19 orderbook replenishment assumption to RM1.6bn following latest contracts win and to take into account improved prospect of the domestic construction industry.

Exploring foreign ground. SunCon is actively exploring for regional opportunities particularly in India and ASEAN in order to diversify the sources of job opportunities. We understand the company is currently bidding for a highway construction contract in India worth RM900m. Separately, Suncon has entered into a MoU with Myanmar conglomerate CDSG. It is evaluating internal projects undertaken by CDSG and its member companies in which, the CDSG-Suncon JV will be on a 65:35 basis. Suncon is also actively looking for piling jobs in Singapore and we understand that there is under-supply for piling capacity in the country at the moment.

Forecast. Increase FY19-21 earnings by 0.5%, 1.2% and 1.7% respectively after increasing our FY19 orderbook replenishment target to RM1.6bn.

Upgrade to BUY, TP: RM2.24. Upgrade to BUY with higher TP of RM2.24 (from RM1.81) after earnings adjustment and increasing PE multiple to 20x (2 year mean: 19x) pegged to mid-FY19 earnings in view of improved domestic construction prospect due to revival of mega infrastructure projects such as ECRL and Bandar Malaysia. We like Suncon for its i) good execution track record; ii) strong support from parent-co Sunway Berhad (BUY, TP: RM2.18) and iii) strong balance sheet (net cash per share: 47 cents).

Source: Hong Leong Investment Bank Research - 1 Jul 2019