SUNCON has bagged a RM278m building job from parent SUNWAY, lifting its YTD order book replenishment to RM881m and its outstanding order book to RM4.5b. It has also finalised a deferred payment scheme offered to client Sharp Ventures Sdn Bhd for the RM185m Large Scale Solar 4 (LSS4) project awarded by the client last year. We maintain our numbers as we have already reflected these in our forecasts. We also keep our TP of RM1.60 and MARKET PERFORM call.

SUNCON has secured a RM278m contract from parent SUNWAY for the construction of Sunway Flora comprising two condominium blocks of 45 and 46 storeys in Bukit Jalil. The construction period is 36 months ending Oct 2025.

It has also finalised a deferred payment scheme (20 equal quarterly instalments over five years from the commercial operation date) offered to client Sharp Ventures Sdn Bhd for the RM185m LSS4 project in Klang awarded by the client last year. The project with a construction period of 18 months is scheduled to be completed by June 2024.

We understand that SUNCON is in the midst of finalising a similar scheme with the owner of another LSS4 contract in Gopeng with a value of RM200m that has also appointed SUNCON as its contractor.

Overall, we are mildly positive on the contract win from SUNWAY that brings YTD replenishment to RM881m – accounting for 59% of our RM1.5b FY22F target (company targets RM2b) and lifts its outstanding order book by 7% to RM4.5b. The guided EBIT margin of 5-8% is in line with our assumption of 7.5%.

While the company appears to be trailing our replenishment assumption and its own target, we are not perturbed as it is currently tendering for a number of large jobs within the electrical and electronics space (E&E) which could fetch contract values of RM1.0b-1.5b per job. Thus, we keep our RM1.5b replenishment target unchanged.

With unchanged forecasts, we maintain MP with SoP derived TP of RM1.60 based on 16x PER for its construction segment. We like SUNCON for: (i) its strong replenishment pipeline from parent SUNWAY, (ii) its dominant position in the local construction space with extensive capabilities and track record in building, infrastructure, solar, mechanical, electrical and plumbing works, and (iii) its net cash position which allows them to participate in deferred payment model projects. We accord a 5% premium to its TP given a 4-star ESG rating as appraised by us (see Page 4).

Risks to our call include: (i) sustained weak flows of construction jobs from both public and private sectors, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rising cost of building materials.

Source: Kenanga Research - 2 Nov 2022