We are neutral on the win as it is well within our order-book replenishment assumptions of RM1.5b. No changes to FY18-19E earnings estimates at this juncture, as we look to review our numbers in the upcoming 9M18 results that is slated to be released on 19th November 2018. Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.65.

Bags Sunway Velocity 2 job. Yesterday, SUNCON announced that they had won a construction job from SunwayVelocity Two Sdn Bhd amounting to RM352.1m. The job scope encompasses the construction works of 2 blocks of service apartment of 53 storeys, office tower of 28 storeys and podium car park. The project is expected to complete in 37 months upon commencement of work.

Neutral. We are neutral with the win as it is part of our FY18E order- book replenishment of RM1.5b which we scaled down from RM2.0b during its 1H18 results inline with management’s revision in target. To date, SUNCON has won RM1.35b worth of jobs (inclusive of pre-cast jobs), bringing its outstanding order-book to c.RM6.2b. It’s year-to-date win of RM1.35b represents 90% of our full-year assumption of RM1.5b. Assuming pre-tax margin of 8%, this particular contract would contribute c.RM6.8m to its bottom- line for FY18-19.

Outlook. The sector outlook remains gloomy due to the recent review of government spending on infrastructure jobs. We believe strong players like SUNCON are able to weather through these challenging times given their strong parent (SUNWAY) support. Nevertheless, we note that there could be further earnings risks to our and consensus estimates due to their huge exposure to LRT3.

Earnings maintained. We make no changes to our FY18-19E earnings for now, but might look to review our numbers in the upcoming results season.

Maintain MARKET PERFORM. We reiterate MARKET PERFORM on the stock with an unchanged SoP-driven Target Price of RM1.65, which we ascribed 11.0x FY19E PER to its earnings. While we remain confident with SUNCON’s competitiveness in the market, the recent review of LRT3 by the government might see the progress recognition timeline being extended, which would result in a downward revision in earnings due to timing issue, as we would need to stretch out our earnings recognition for the particular project. Nonetheless, we are only looking to review our numbers in the upcoming results.

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 - 14 Nov 2018