Sunway Construction (Suncon) reported net profit of RM144.7m (+9% yoy) in 2018, which was within market and our expectations. Core net profit grew 16% yoy to RM150.7m, excluding net exception loss of RM6.5m. Remaining order book increased to RM6bn to date, equivalent to 2.7x 2018 revenue. We like Suncon for its good earnings visibility and good prospects to replenish its order book this year. Suncon remains our top construction sector BUY with RM2.00 target price, based on 10% discount to RNAV.

Within Expectations

Suncon’s 2018 net profit of RM145m was close to consensus and our forecasts of RM146-147m. Revenue was up 9% yoy to RM2.26bn in 2018, mainly driven by higher construction revenue (+10% yoy) as precast concrete revenue contracted (-8% yoy). Similarly, PBT increased 9% yoy to RM183m with higher contribution from its construction segment (+29% yoy), which offset the 96% yoy contraction in precast concrete PBT. Core earnings momentum picked up in 4Q18, up 14% qoq and 55% yoy to RM44m. But net profit was flat qoq due to net exceptional loss of RM8.2m.

High Order Book

Suncon clinched RM1.6bn new contracts in 2018 (80% from its parent company and 20% from external sources). Its target is to secure RM1.5bn new contracts in 2019, which is in line with our assumption for our earnings forecasts. The recently secured RM781m TNB HQ Campus Development (Phase 2) contract has met 52% of its target.

Good Prospects for New Contracts

Suncon is looking to bid for contracts such as the RM2bn Large Scale Solar 3, RM29bn public hospital projects developed by Jabatan Kerja Raya and the Subang Aerotech Park developed by Khazanah Nasional. It has a strong track record in these special-purpose building projects.

Top Sector BUY

We lift our core EPS by 1% in 2019-20E after fine-tuning our forecasts. We reiterate our top sector BUY call on Suncon with RM2.00 target price, based on 10% discount to RNAV. Key downside risks are slow implementation of government projects and substantial cut in scope of works for Suncon’s Light Rail Transit Line 3 contract, which is under negotiation.

Source: Affin Hwang Research - 26 Feb 2019