INVESTMENT HIGHLIGHTS

• SCGB was awarded a contract by TNB

• Scope of job is main building works

• Outstanding orderbook now at RM6.0b

• Positive on the news, but impact still within assumption

• Maintain our BUY rating with unchanged TP of RM1.78

Awarded RM781m job. Sunway Construction Group Berhad (SunCon) announced yesterday that its fully owned-subsidiary, Sunway Construction SB (SCSB), has accepted a letter of award issued by Tenaga Nasional Berhad for the development of TNB HQ Campus (Phase 2). The job award entails the construction and completion of TNB HQ Campus at part of Lot No. 490 and Lot No. 6266, Jalan Bangsar, Kuala Lumpur. The total contract sum is estimated at RM781.3m.

Background on project. The TNB HQ Campus is located near its 81- year old headquarters in Bangsar. The new infrastructure will comprise of Phase 1, the Balai Islam Complex, and Phase 2 which comprises four blocks of office buildings with shared facilities. Upon completion, the new office will be utilized to accommodate its 30,000 workforce and to expand operations. Altogether, the development of TNB HQ Campus is estimated to carry a GDV worth RM1.0b.

Duration. We expect contribution from this project to start in the beginning of 2HFY19. On that note, expected works are scheduled to complete within 26 months since the date of commencement. Assuming work progress starts in June, we believe that the completion will be around July 2021.

RM6.0b will likely sustain earnings until FY21. We make no changes to our earnings forecasts as the award is within our job replenishment assumption. The new contract awarded fills up 52.1% of our replenishment target at RM1.5b. As of writing, its total unbilled job stood at RM6.0bn, which equates to an admirable 2.9x cover to FY17 revenue, and will likely sustain earnings until FY21.

What we think about the stock. SunCon’s strength is in the job replenishment capability that is well supported by the parent company (Sunway Berhad). In our opinion, the benefit of internal job flows is far-reaching, as we incorporate the uncertainties on near term public jobs. Having a net cash position is evidently positive, providing support to clinch and operate new projects. Moreover, the group’s healthy financial position and large order backlog should bode well with its future value accretion. On that note, we think that SunCon’s prospect is positively intact. At this juncture, we maintain our BUY rating on SunCon with an unchanged TP of RM1.78 pegging its FY19 EPS to PE of 15x. However, we will re-look our assumptions once the full year results are released next week.

Source: MIDF Research - 20 Feb 2019