INVESTMENT HIGHLIGHTS

• RM2.17bn LRT3 award for Package GS07-08

• Orderbook flitted to RM6.5bn

• Introduced revenue and earnings estimates for FYE18/FYE19

• Altogether, we upgrade our TP to RM2.67 per share to reflect our earnings upgrade .

Achieved another landmark award. Suncon’s wholly owned subsidiary Sunway Construction Sdn. Bhd. has received letter of award from Prasarana Malaysia Berhad with MRCB George Kent Sdn. Bhd. for the construction of Package GS07-08 amounting to RM2.17bn (ex GST).

Orderbook flitted to RM6.5bn. The scope of the project includes construction of elevated guideways, 6 elevated stations inclusive of park and ride facilities for duration of 36-months over 9.2km of track. The package is unique as it involves building an iconic bridge over the Klang River. The project increased Suncon’s orderbook from its previous unbilled orderbook of RM4.4bn to RM6.5bn (+49.3%). We view this as earnings accretive as the project’s scale enables Suncon to mobilize its team efficiently within the Klang Valley and reduce transport cost. We view the cost per km of RM236.9m as fair as it involves building an iconic bridge and higher traffic complexity due to its project location in Klang. Notably, apart from the LRT3 award, Suncon has clinched the Projek Perumahan Penjawat Awam (PPA1M) in Kota Bharu, Kelantan worth RM581.6m in mid-EarSeptember.

Introduce revenue and earnings estimates for FYE18/FYE19. That’s said, backed by an estimated margin of 7.0% we introduce the FYE18/FYE19 earnings estimates in line with the project announcement. We believe that risks emanating from cost overrun and construction program delays are mitigated with the location of the package with the exception of the iconic cable bridge which could influence a higher execution risk. Additionally, local projects are positive to Suncon as it would reduce its reliance on pre-cast sales to Singapore.

Recommendation. As a result of our earnings upgrade, we adjust our TP to RM2.67 implying +16.1% upside per share based on sum-of-parts methodology. We fine-tuned our SOP-methodology based on DCF valuation, assuming a certainty equivalent of 60% for the PP1M and LRT3 projects (WACC: 7.0%)

Source: MIDF Research - 6 Oct 2017