SUNCON’s 9M17 CNP of RM102.0m is within our, but below consensus, full-year expectation, at 70%/68%. A 3.0 sen dividend declared, as expected. No changes to FY17-18E CNP. Maintain MARKET PERFORM with an unchanged SoP- driven Target Price of RM2.29.

Within our, below consensus, expectation. Its 9M17 CNP of RM102.0m came in at 70%/68% of our and consensus’ full-year estimates. It is within our but below consensus’ expectation. We believe the shortfall in consensus estimates could be due to the weaker-than- expected performance from its pre-cast division owing to timing issues. A 3.0 sen dividend was declared, inline with our full-year expectation of 4.0 sen.

Results highlight. 9M17 CNP grew 8%, YoY, driven by:(i) revenue growth of 7%, (ii) lower effective tax of 19% (-2ppt), and (iii) improvement in pre-tax margin to 9% (+1ppt). Construction revenue growth of 17% provides a safe cushion for the fall in precast revenue (- 41%). The improvement in pre-tax margins was attributable to better billings progress from its on-going projects, i.e. MRT2, Parcel F, Putrajaya, ISKL and etc. QoQ, 3Q17 CNP only saw marginal growth of 2%, despite 18% growth in revenue due to: (i) higher effective tax of 20% (+6ppt), and ii) weaker pre-tax margins of 9% (-1ppt) due to some minor write offs. On segmental basis, pre-tax profit for its construction division grew by 12%, while precast division saw a decline of 63%. The sharp decline in its precast division’s performance was due to low billings as its clients were unable to take delivery of their precast products due to their slow construction work progress in Singapore.

Outlook. SUNCON’s outstanding order-book now stands at RM6.8b providing earnings visibility for the next 2-3 years. Going forward, we believe that SUNCON might look to focus on its on-going projects and more selective in their future jobs selections, which command better margins.

No changes to earnings. Post results, there are no changes to our FY17-18E earnings estimates.

Maintain MARKET PERFORM. We reiterate our MARKET PERFORM call on SUNCON with an unchanged SoP-driven Target Price of RM2.29, backed by massive outstanding order-book of RM6.8b coupled with the potential recovery in its precast division where billings are expected in FY18. Our TP of RM2.29 implies FY18E PER of 17.1x, trading close to big-cap peers’ average of 18.0-20.0x.

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 - 21 Nov 2017