SunCon announced that they have secured RM678m worth of new and variation orders in relations to two LSS4 projects and an existing mixed development project. The win brings total orders to RM1.47bn beating our existing assumption of RM1.2bn which was enabled by our recent downward revision. Including the new orders, total orderbook increases to RM5.3bn representing a healthy 3.4x cover on FY20 revenue. We do not foresee major hiccups considering the company’s good execution record and are within SunCon’s area of expertise. Increase FY22-23 earnings forecasts 1.6% and 1.3% after factoring the latest job wins. We have also proceeded to cut our FY22 replenishment assumption by c.RM400m as we had earlier expected the LSS4 contracts to come in FY22. We are pencilling in RM1.8bn of total orders for FY22. Maintain BUY with slightly higher TP of RM1.77. Existing presence in infrastructure friendly India and strong internal pipeline is comforting for job flow clarity.

NEWSBREAK

SunCon announced the receipt of two LOIs for LSS4 projects worth a cumulative RM385m from Gopeng Berhad and Sharp Ventures Solar Sdn Bhd. Scope of works include EPCC of Solar PV with a total capacity of 100MW. Works will begin imminently to meet the scheduled commercial operation date on 31 December 2023 as required by Suruhanjaya Tenaga. In a separate announcement, SunCon also announced a modification to its previous contract win for CP2, Bandar Sunway project which increases contract value by RM292.5m to RM755.7m.

HLIB’s VIEW

Decent showing. The latest contract wins and modification brings SunCon’s total order wins in 2021 to RM1.47bn, matching our prior expectations of RM1.5bn but beating our current expectations of RM1.2bn. We had very recently revised downwards assumptions in view of nearing year end. Including the new orders, total orderbook increases to RM5.3bn representing a healthy 3.4x cover on FY20 revenue. We do not foresee major hiccups considering the company’s good execution record and are within SunCon’s area of expertise. We believe the new contracts have also adequately accounted for high materials costs throughout 2021 with margin upside should prices weaken.

Forecast. Increase FY22-23 earnings forecasts 1.6% and 1.3% after factoring the latest job wins. We have also proceeded to cut our FY22 replenishment assumption by c.RM400m as we had earlier expected the LSS4 contracts to come in FY22. We are pencilling in RM1.8bn of total orders for FY22.

Maintain BUY, TP: RM1.77. Maintain BUY with slightly higher TP of RM1.77 post earnings adjustments. TP is derived by pegging FY22 EPS to 15x ex-cash P/E. Suncon is well positioned to partake in pump priming initiatives should it happen. Its healthy balance sheet with net cash position (RM0.30/share), existing presence in India and strong support from parent-co Sunway Bhd should provide job flow clarity post-uninspiring Budget-22.

Source: Hong Leong Investment Bank Research - 28 Dec 2021