INVESTMENT HIGHLIGHTS

• Sunway Construction Group Berhad (SCGB) 9MFY16 earnings of RM91.4m slightly lower than expected

• 9MFY16 results were influenced by project completion and lower pre-cast sales volume

• Nevetheless, our earnings forecast remain sanguine due to total outstanding orderbook of RM4.8bn and uptick in HDB new launches

• We reaffirm our NEUTRAL stance with an unchanged TP of RM1.74 per share price.

9MFY15 earnings within our expectations. SCGB’s 9MFY16 PATAMI came in lamentably lower at RM91.4m (-7.0% YoY). Nonetheless, its 9MFY16 earnings came in below our expectations, registering for 71% of ours and 67% of consensus’ full-year forecasts.

Disappointing earnings influenced by construction segment. We opine its tepid earnings was dragged mainly to the following:

i. Completion of civil and construction for infrastructure jobs such as ; (a) Sunway Geo Retail and Flexi Suites in Bandar Sunway, (b) LRT Package B (Kelana Jaya Line Extension) and (c) KVMRT Package V4 Viaduct Gateway, Section 17, Petaling Jaya and Sunway Lenang Phase 1A in Johor. The construction segment contributes 65.2% of PBT for 9MFY16.

ii. Lower sales volume at higher cost due to steel bar prices for pre cast segment despite an uptick from Housing Development Board of Singapore (HDB) new launches especially in Punggol. The segment contributes 34.7% of PBT for the 9MFY16.

Impact on earnings. We maintain our earnings forecast despite the slight blip in 9MFY16 results which is transient. Its total outstanding orderbook stands at RM4.8bn or approximately 36 months. We believe that 4QFY16 would be more promising especially for pre-cast segment as the measures by the government to imposed duties between the ranges of 13.4% to 13.9% for imported steel bars. Hence, the move will potentially maintain the PBT margin for pre-cast segment in upcoming quarters and remove the concern on margin erosion.

Recommendation. Altogether, we reiterate our Neutral stance with an SOP-based target price of RM1.74 per share.

Source: MIDF Research - 23 Nov 2016