Yesterday, SUNCON bagged a RM180.0m contract award from Alliance Parade for the construction works of Sunway Medical Centre Phase 1 in Penang. No changes to FY18-19E earnings. Maintain OUTPERFORM with an unchanged SoPdriven Target Price of RM2.30.

Medical centre job. Yesterday, SUNCON announced that they have secured a contract award from Alliance Parade amounting to RM180.0m. This particular contract award involves the proposed development of Sunway Medical Centre Phase 1 in Penang. This will be Sunway’s 3rd medical centre in the pipeline for the healthcare expansion and the first within the Northern Region and is expected to complete within 31 months.

Neutral on win. We are neutral with the win as it is part of our FY18E order-book replenishment of RM2.0b. To date, SUNCON has won RM722.0m worth of contracts beefing its outstanding order-book to RM6.3b, which makes up 36% of our full-year assumption of RM2.0b. Assuming pre-tax margin of 8%, this contract would contribute c.RM4.2m to its bottom-line per annum.

Outlook. Despite the uncertainty in the construction sector arising from the change in government, we believe that it is business as usual for SUNCON given their strong parent company (SUNWAY) support and strong track record in securing projects from both government and private sector. Hence, we are maintaining our order-book replenishment of RM2.0b at this junction. That said, we believe its earningsremainsok remain intact backed its strong order-book of RM6.3b with visibility of 3 years.

Earnings maintained. Post contract award, we make no changes to our FY18-19E earnings.

Maintain OUTPERFORM. We reiterate OUTPERFORM on the stock with an unchanged SoP-driven Target Price of RM2.30, as we believe that the review of construction projects by the new government would not have any major impact on SUNCON given their ability and competitiveness in the construction scene. At our TP of RM2.30, it implies FY19E PER of 15.4x.

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 May 2018

Source: Kenanga Research - 15 May 2018