1QFY22 CNP of RM35.5m came within our/market expectations at 27% each. No dividends declared as expected. YTD replenishment of RM265m trails our/management’s target of RM1.5b/RM2.0b. Meanwhile, due to replenishment drought, its outstanding order-book has continued to dwindle, to RM4.4b – lowest since 2QFY17. Post results, keep earnings estimates, MP call and SoP-TP of RM1.52 unchanged.

Within expectations. 1QFY22 CNP of RM35.5m came within our/consensus expectations at 27% each. No dividends declared as expected. SUNCON typically declares dividends in 2Q and 4Q.

Highlights. 1QFY22 CNP of RM35.5m decreased 52% QoQ mainly due to lower OP margins (-7ppt) as the previous quarter recorded supernormal OP margin when the group recalibrated margin upwards for projects reaching completion.

YoY, 1QFY22 CNP increased 75% on higher revenue (+37%) and stronger OP margin (+1ppt). The higher revenue stemmed from higher progress billings as 1QFY21 was impacted by MCO 2.0 while the stronger OP margin is attributable to final account closing for completed projects.

YTD, Suncon has replenished RM265m worth of new jobs - trailing behind our RM1.5b target and management’s RM2.0b target. With the lack of jobs during the pandemic, tenders have been extremely competitive. Consequently, Suncon have been tendering for new jobs at 3-4% OP margins (vs their typical 5-8% margins) hoping to secure new jobs first and create value engineering to bring margins up later in the project. Current order-book stands at RM4.4b – its lowest since 2QFY17. We expect contract rollouts to pick up in 2H of this year on easing input costs and labour issues. Thus, we keep our RM1.5b target unchanged for now.

For the rest of the year, despite the labour shortages and higher input costs faced by the industry, we expect SUNCON to meet sell-side estimates as they will be completing a number of jobs this year that would see upwards revision in margins upon project completion (due to their prudent recognition of project margins in the initial phase). Hence, we expect OP margins to remain at 7-8%.

Keep FY22-23E earnings unchanged post results.

Maintain MP with unchanged SoP-derived TP of RM1.52 anchored to unchanged FY22E PER of 16x on construction earnings, and 10x on precast segment’s earnings.

Risks include lower-than-expected margins, and delay in work progress.

Source: Kenanga Research - 26 May 2022