INVESTMENT HIGHLIGHTS

• Overall revenue was down -29.7%yoy in 1QFY19

• Construction segment underperformed

• Meanwhile for precast, revenue contracted by -11.1%

• No earnings adjustment

• Maintain NEUTRAL but TP adjusted higher at RM2.00 from higher valuation multiple due to improving sectoral sentiment

Overall revenue was down -29.7%yoy. For 1QFY19, SunCon reported lower revenue at RM440.0m in comparison to 1QFY18 figure of RM529.2m. Moreover, quarterly PATANCI declined by -13.3%yoy albeit by lower deviation due to better profit margin. Nonetheless, SunCon’s first three-month earnings came in within our and consensus expectations at 20.3% and 20.7% of full year earnings respectively.

Construction segment underperformed. During the quarter, the segment contributed approximately RM407.0m to the group’s total revenue. The figure was comparatively low at -17.3%yoy due to substantial completion of Parcel F, Putrajaya. Notably, this was further impacted by the delay in LRT3 and MRT2 works, attributed to cost optimisation exercise for station scope by the client. Currently, LRT3 project represents a larger chunk of outstanding work at circa 84.3%. Accordingly, we expect a pick up in the near-term for the construction segment as some works for LRT3 has already recommenced in 2QFY19. The slight delay was inevitable as the project had to go through some redesigning, following the cost reduction exercise.

Meanwhile for precast, revenue contracted by -11.1% to RM33.0m in 1QFY19. The current projects were seen yielding lower PBT margin at below <1.0%. Compared to last year, the difference was stark as the PBT margin in 1QFY18 stood at 9.7%. The margin contraction was largely due to the highly competitive market. Nonetheless, some improvements were seen in the business environment for precast during the later part of FY18 hence providing headroom for better jobs pricing. In recognition of this, margin improvement is already on the horizon which will likely manifest in 2HFY19 once the new orders start to kick-in.

Source: MIDF Research - 17 May 2019