SunCon’s FY19 earnings of RM134m (-7% YoY) were within ours and consensus expectations. FY19 core PATAMI decreased due to lower contribution from construction segment as for the majority of FY19, projects were at its initial stages further exacerbated by slow progress for LRT3. Precast segment recovered significantly as old lower margin projects approach completion. Outstanding order book of RM5.2bn translates into 3.0x cover ratio and going forward, we expect stronger job flows as government rolls out infra projects. Maintain earnings forecast as results were in-line with expectations. Maintain BUY with unchanged TP of RM2.30, based on 20x PE multiple pegged to FY20 earnings.

Within expectations. SunCon reported 4QFY19 results with revenue of RM485.9m (+21% QoQ, -22% YoY) and core earnings of RM36.3m (+2% QoQ, -1% YoY). This brings FY19 core earnings to RM134.1m, decreasing by 7% YoY. The core earnings accounted for 103% of our full year forecast (consensus: 102%) which is within expectations. Second interim DPS of 3.5 sen (going ex. on 12 March 2020) was declared for the quarter. This brings total DPS declared for FY19 to 7.0 sen.

QoQ. Core PATAMI increased by 2% mainly due to stronger contribution from both construction and precast segments for the quarter. 4QFY19 construction PBT increased by 8% driven by recommencement of works for its LRT3 project.

YoY/ YTD. YoY and YTD core PATAMI decreased by 1% and 7% respectively mainly due to lower contribution from construction segment as for the majority of FY19, projects were at its initial stages.

Precast. Precast segment saw stronger PBT contribution of RM2.4m (3QFY19 PBT: RM0.2m). Margins improved QoQ by 4.8ppts to 5.4% as lower margin projects secured earlier approaches completion. We expect PBT margin for this segment to normalize to c.10% in FY20 as contribution from newly secured higher margin projects kicks in.

Replenishment prospects. SunCon’s latest outstanding orderbook stands at c.RM5.2bn, translating into healthy level of 3.0x cover of FY19 revenue. Active outstanding tenderbook stands at an impressive RM7.0bn (FY18: RM6.0bn). Management is targeting RM2bn worth of jobs in FY20 excluding potential contract wins from the upcoming ECRL tenders, wins from PTMP as well as foreign job awards. RM800m worth of jobs is to be awarded by its parent-co. For external building jobs, management is expecting RM500m worth of awards this year to be contributed by superstructure works for Putrajaya TOD (piling was done by SunCon) as well as tender for construction of KLCC retail podium (car park was constructed by SunCon). On its geotechnical side, the group aims to win RM300m worth of jobs as the outlook for piling in Singapore looks positive on the back of infra project rollouts compounded by a shortage of piling capacity. The remaining RM400m will be from solar related jobs and precast. SunCon has also recently submitted a tender for an Indian highway worth RM500m after repeated extensions by the authorities. We understand the funding model enables SunCon to undertake no traffic volume risk.

Forecast. Maintained as results were within our expectations.

Maintain BUY, TP: RM2.30. Maintain BUY with same TP of RM2.30 based on 20x PE multiple pegged to FY20 earnings. We like Suncon for its i)positive earnings trajectory; ii) strong support from parent-co Sunway Berhad (BUY, TP: RM2.15) and iii) strong balance sheet with net cash position (RM0.31/share)

Source: Hong Leong Investment Bank Research - 21 Feb 2020