1H19 CNP of RM61.4m makes up 50%/42% of our/consensus full-year expectations. It came in within our, but below consensus, expectations, Market consensus could have been slightly optimistic on margin assumptions or billings progress. A 3.5 sen dividend declared, as expected. No changes to FY19-20E numbers. Maintain UP with an unchanged SoP-driven TP of RM1.45.

Within our forecast, below consensus. 1H19 CNP of RM61.4m makes up 50%/42% of our/consensus full-year expectations. It came in within our forecast but below consensus. We believe the market consensus could have been slightly optimistic on margin assumptions or billings progress. A 3.5 sen dividend declared, as expected.

Results highlight. 1H19 CNP decreased by 10%, YoY, dragged by lower revenue (-18%). The decrease in revenue stemmed from both the construction (-19%), and pre-cast (-4%) divisions, due to: (i) construction performance bogged down by slower work progress from LRT3, (ii) pre-cast division affected by timing as bulk of jobs secured previously will only commence on a later date which we presume to be in 2H19, and (iii) higher effective tax of 21% (+2ppt). QoQ, 2Q19 CNP improved 11%, thanks to the increase in net financing income (+85%) coupled with a lower effective tax rate of 20% (-1ppt).

Outlook. We remain unexcited with the near-term prospects in the construction sector, despite the revival of ECRL. However, management is actively venturing overseas with an active tender-book of RM12.5b, of which we believe they stand a good winning chance in the ASEAN market, thanks to their strong execution track record. Nonetheless, its outstanding order-book of RM5.8b provides 2.5 years of visibility.

Earnings review. Post results, no changes to our FY19-20E earnings.

Maintain UNDERPERFORM. We reiterate our UNDERPERFORM call on SUNCON with an unchanged SoP-driven Target Price of RM1.45 of which we ascribed 11.0x PER to its FY20E Core EPS. However, our SoP-driven TP of RM1.45 which includes cash implies FY20 PER of 12.0x, which is higher than our universe’s ascribed valuation range of 6- 11.0x for the sector, and close to KLCON’s 10-year average of 13.3x.

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 - 20 Aug 2019