Despite strong 4QFY20 CNP of RM37.9m (+67% QoQ; +4% YoY) lifting FY20 above our/consensus expectations at 118%/109%, we dial down our earnings optimism for FY21E by 18% to RM132m after factoring: (i) hindered productivity arising from MCO 2.0 and (ii) slightly lower margins for potential disruptions. Consequently, SoP-TP is lowered to RM2.10 (from RM2.45). However, it is still our top pick in the construction space; thus, reiterate OP.

Above expectations. 4QFY20 CNP of RM37.9m* lifted FY20 CNP to RM82.8m – coming above our/consensus expectations at 118%/109% due to higher-than-expected revenue led by more works done during the quarter. Despite CMCO being imposed in 4QCY20 (starting 14th Oct 20), works were unaffected, progressing at 100%.

Dividends were also above. 4QFY20 dividend of 2.75 sen lifted FY20 DPS to 4.0 sen – surpassing our estimates of 2.5 sen.

*4QFY20 CNP adjusted for reversal of: (i) disposal loss of RM1.1m, (ii) receivable impairments worth RM5.5m, (iii) FX loss of RM0.5m, and (iv) accretion of financial liabilities of RM0.6m.

Highlights. 4QFY20 CNP of RM37.9m surged 67% QoQ on higher progress/deliveries at both construction and precast divisions that boosted segmental PAT contribution by 13% and 354%, respectively. Note that precast margins for the quarter registered a healthy 9.3% - a level not seen since FY17. We expect such margins to remain sustainable forward as demand for precast in Singapore continues to grow.

YoY, FY20 CNP of RM82.8m was down 37% mainly due to reduced productivity from the pandemic that led to multiple lockdowns.

Targeting RM2b replenishment in FY21 (in line with management) backed by potential awards from: (i) Sunway Valley City (GDV of RM2.4b ~ potentially RM700m awards), (ii) solar-related contracts (tendered for four 30MW packages of LSS4 at RM150m each), (iii) KLCC basement + podium, (iv) piling jobs in Philippines (RM50- RM100m/package), and (v) precast orders from Singapore.

YTD, it has replenished RM366m new jobs with precast contributing RM110m and the balance comprising in-house jobs. Outstanding order book of RM5.1b (as of Dec-20) provides c.2.5x revenue cover.

MCO 2.0 which begun on 13 Jan 2021 shrank construction productivity to 50% (vs 100% in 4QFY20 during the CMCO) as Suncon strictly adhered to the SOPs where activities at sites without dedicated accommodation/logistics were halted. That said, works have gradually picked up, currently at c.80% utilisation now. Meanwhile, precast segment’s productivity uninterrupted at 100% as Singapore’s operation has been back to normal since mid Aug 2020.

Reduce FY21E earnings by 18% after factoring for lower productivity during MCO 2.0 and a slower recovery arising from potential disruptions in case of new infection on sites. Introduce FY22E CNP of RM149m. Maintain OUTPERFORM with a lower SoP-derived TP of RM2.10 (from RM2.45) anchored by an unchanged construction PER of 18x (+1SD above its 5-year mean). Continue to favour the name for their robust balance sheet, timely execution and replenishment support from Sunway.

Source: Kenanga Research - 24 Feb 2021