SUNCON announced that they have bagged a PPA1M project worth RM581.7m for the construction of 6 blocks of 29-storey PPA1M apartment in Kelantan. We are NEUTRAL on the award as YTD wins of RM1.6b is still within our FY17E replenishment target of RM2.0b. No change to our earnings estimates. Maintain UP with an unchanged TP of RM2.00.

New PPA1M project. Yesterday, SUNCON announced that they have secured a PPA1M project worth RM581.7m from Liziz Standaco S/B. The project comprises construction works for 6 blocks of 29-storey PPA1M apartment at Kota Bharu, Kelantan slated for delivery in 1Q 2020 (30 months).

NEUTRAL on contract. We remain NEUTRAL on this contract given that YTD wins of RM1.6b (comprising 9 projects) is still within our FY17E replenishment target of RM2.0b – accounting for 80% with a remainder of RM400m to be achieved. Assuming pre-tax margin assumption of 8%, the contract will contribute c.RM14.0m to SUNCON’s bottom-line/annum.

Outlook. Currently, SUNCON’s outstanding order-book stands at RM4.7b providing earnings visibility for the next 2-3 years. We believe SUNCON is on track to meet their and our orderbook replenishment targets of RM2.0b, given that it has already secured RM1.6b worth of jobs YTD excluding its MRT2 station works, which is expected to be lumpy. We are also expecting SUNCON to at least bag a package of civil works from LRT3.

Earnings unchanged. Post award, we make no changes to our FY17- 18E earnings.

Maintaining UNDERPERFORM. We note that while we like SUNCON for its pure exposure to the construction industry and ability to secure big-ticket infrastructure projects, its share price had rallied by 38% since the beginning of the year leading to steep valuation levels of FY18 PER of 20.2x vs big-cap peers’ average of 18.0-20.0x or FBMKLCI FY18 PER of 16.4x. Hence, we maintain our UP call with an unchanged SoPderived TP of RM2.00 post award. That being said, we shall relook and to upgrade the stock should any fresh catalysts emerge in the mid-tonear term or if there are share price retracements as we remain confident of the group’s prospects.

Risks to our call include: (i) higher-than-expected margins/order book replenishment, and (ii) higher government spending on infrastructure and affordable housing projects.

Source: Kenanga Research - 15 Sept 2017