Positive on the 3 contract wins totalling to RM496.8m, bringing its year-to-date win to RM1.5b. We raised our FY20E earnings by 4% after factoring in an additional RM300.0m worth of order-book replenishments into our assumptions. Maintain UNDERPERFORM with a higher SoP driven Target Price of RM1.45 (previously, RM1.40).

Bags 3 contracts totalling to RM496.8m. Last Friday, SUNCON announced that they have won 3 construction jobs: - i) Petronas Leadership Centre (RM310.0m), ii) Sunway South Quay’s Parcel CP2 project (RM119.0m), and iii) Oxley project (RM67.8m). The execution timelines for the projects mentioned above range from 20 to 34 months upon commencement.

Positive on wins. We are positive on the wins by SUNCON which they have demonstrated to remain competitive in a challenging market. These wins would bring its year-to-date replenishment up to RM1.5b in line with our and management’s target of RM1.5b. Assuming pre-tax margin of 8%, these 3 contracts would contribute an aggregate c.RM29.0m to its bottom-line.

More in the pipeline? After accounting for the wins above, Its outstanding order-book now stands at c.RM6.2b, providing them 3- years earnings visibility. Looking at SUNCON’s strong order-book replenishment track record in an uncertain market, we do not rule that they might continue to win 1 or 2 projects for the year, especially from overseas markets, i.e. Myanmar and India which management is actively bidding for works in those two countries.

Earnings tweak. Following these contracts win, we raised our FY20E CNP by 4%, as we have factored in an additional RM300.0m worth of order-book replenishment which we believe that management are able to achieve for the year.

Maintain UNDERPERFORM with a higher SoP-driven Target Price of RM1.45 (vs. RM1.40 previously) post revision in our FY20E earnings. We ascribed 11.0x FY20E PER which is the highest valuation range within our stock coverage universe range of 6-11x.

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 - 1 Jul 2019