1Q17 CNP of RM34.0m was within expectations, accounting for 23%/21% of our and streets? full-year estimates. No dividend declared for FY17 yet, as expected. No changes to FY17-18E core earnings. Maintain MARKET PERFORM with a higher SoP-driven Target Price of RM2.00 (previously, RM1.77).

Within expectation. 1Q17 CNP of RM34.0m came in within expectations, accounting for 23%/21% of our and streets? full-year estimates, respectively. No dividends were declared yet for FY17 as expected.

Results highlight. YoY, 1Q17 CNP saw improvement of 13% despite a marginal decline in revenue of 1% driven by both of its divisions, i.e. construction and pre-cast, which registered pre-tax growth of 9% and 37%, respectively. Its construction division saw its pre-tax margins improved by 1ppt to 8% due to recently completed project under its civil division and receipt of award sum from one of its arbitration cases. Likewise, its pre-cast division revenue improved by 36% thanks to better selling prices. QoQ, 1Q17 CNP surged by 44% thanks to significant improvements in margins as its pre-tax margins improved by 4ppt to 11% attributable to abovementioned reasons.

Outlook. For FY17, we believe that SUNCON is on track to meet their and our orderbook replenishment target of RM2.0b, given that it has already secured RM0.6b worth of jobs year-to-date excluding its MRT2 station works. We are also expecting SUNCON to at least bag a package of civil works from LRT3. Its current outstanding order book stands at RM4.6b providing earnings visibility for the next 2-3 years.

Revision in earnings. No changes to our FY17-18E earnings.

Maintain MARKET PERFORM. We are maintaining our MARKET PERFORM call on SUNCON but with a higher SoP-based Target Price of RM2.00 (previously, RM1.77) as we rolled forward our valuation base year to FY18 with a higher PER of 16x (previously, 14x FY17 PER) due to improved market sentiment coupled that SUNCON?s re-inclusion into the Shariah list which generally commands a premium to non-shariah counters. Our TP of RM2.00 implies FY18E PER of 17.5x close to the lower end of our big caps? targeted PER range of 16-18x.

Risks to our call include: (i) lower-than-expected margins/order book replenishment, (ii) delay in construction works, and (iii) cut or delay in government spending on infrastructure and affordable housing projects.

Source: Kenanga Research - 26 May 2017