Sunway Construction’s (Suncon) 2017 result was within market and our expectations. Net profit rose 12% yoy to RM138m, mainly driven by higher construction earnings while precast concrete earnings declined. Its high order book of RM6.1bn and our expectation of RM2bn worth of new contracts will support core EPS growth of 31% yoy in 2018E. Maintain HOLD with 12M TP of 2.45.

In Line With Expectations

2017 net profit of RM138m was in line with consensus forecast of RM137m and our estimate of RM144m. Revenue jumped 16% yoy to RM2.08bn in 2017, driven by higher construction revenue (+29% yoy), which was partly offset by lower precast concrete revenue (-50% yoy). Construction revenue growth was driven by higher work progress for its Parcel F, Putrajaya, and KVMRT V201 (Sg Buloh to Persiaran Dagang) projects and additional revenue from the finalisation of the completed KVMRT V4 package (Seksyen 16 to Semantan Portal). The completion of several projects and the delay in commencement of a project in Singapore led to the lower precast concrete revenue.

Construction Was Key Earnings Driver

PBT grew 13% yoy, driven by higher construction PBT (+54% yoy) but was held back by lower precast concrete PBT (-53% yoy). As a result, construction PBT contribution increased to 84% of group PBT in 2017 from 62% of group PBT in FY16.

Strong Order Book Replenishment

Suncon achieved a record-high new contract procurement of RM4bn in 2017, replenishing its order book to RM6.1bn at end-2017. It is targeting new contracts of RM1.5-2.0bn in 2018. The largest project tender currently is for the KL-Singapore High Speed Rail Project Delivery Partner role for the Malaysian portion through the IJM Corp-Jalinan Rejang-Maltimur Resources-Suncon consortium. Suncon has clinched RM456m worth of new contracts YTD in 2018 from related companies in the Sunway group.

Maintain HOLD

We reiterate our HOLD call with unchanged TP of RM2.45, based on 10% discount to RNAV. Suncon declared a 4 sen interim DPS, bringing total DPS to 7 sen in FY17. Dividend payout ratio rose to 66% in 2017 from 52% in 2016, supported by high net cash of RM353m or RM0.27/share.

Source: Affin Hwang Research - 27 Feb 2018