Yesterday, SUNCON announced that they have secured two piling jobs totalling RM69.5m from Tenaga Nasional Bhd and Cergas Murni Sdn Bhd. We are neutral on the win as it is well within our order-book replenishment assumptions of RM2.0b. No changes to FY18-19E earnings. Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM2.40.

Bags piling jobs. Yesterday, SUNCON announced that they have secured two contract awards totalling RM69.5m from: (i) Tenaga Nasional Bhd (RM23.2m) and (ii) Cergas Murni Sdn Bhd (RM46.3m) with a completion time frame of 7 and 15 months, respectively. The job from Tenaga involves piling works for the construction and completion of TNB campus while the one from Cergas Murni involves piling works for the mixed development in Bukit Bintang City Centre.

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 RM791.5m with its outstanding order-book swelling to RM6.4b or c.40% of our full-year assumption of RM2.0b. Assuming pre-tax margin of 10%, this particular contract would contribute c.RM5.2m to its bottom- line for FY18-19.

Outlook. Despite the uncertainty in the construction sector arising from the change in government, we believe that the outlook remains promising for SUNCON given their strong parent (SUNWAY) support, coupled with their 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 earnings outlook remains intact backed its strong order-book of RM6.4b 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 accordingly to RM2.40, as we believe the review of construction projects by the new government would not have any major impact to SUNCON given their ability and competitiveness in the construction scene. At our TP of RM2.40, it implies FY19E PER of 16.1x close to the big-boys’ ascribed eearnings arnings multiple range of 17-18x.

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 - 24 May 2018