INVESTMENT HIGHLIGHTS

• Awarded RM496.8m worth of jobs

• Unbilled job around RM5.7b, visibility up to three years

• The newly clinched projects to run for 20 to 35 months

• A slight adjustment of +2.0% to our FY20 number

• Upgrade to BUY with adjusted TP of RM2.21

Awarded RM496.8m worth of jobs. Sunway Construction Group Berhad (“SunCon”) announced on Friday last week that its fully ownedsubsidiaries, Sunway Construction SB (“SCSB”) and Sunway Engineering SB (“SESB”), have accepted a letter of award, letter of intent and letter of appointment in respect of the following projects:

Visibility up to three years. Total new projects secured this year amounted to RM1.5b in value. We noted that the latest outstanding orderbook stands at approximately RM5.4b as of May 2019. By adding the latest jobs value of RM496.8m, we estimate that its unbilled job to be around RM5.7b as of June 2019. Accordingly, this amount equates to 2.5x of FY18 revenue.

The newly clinched projects to run for a period of 20 to 35 months. The earliest job commencement will be in July 2019, comprising jobs awarded by Sunway South Quay SB and Ssangyong Engineering & Co. Notably, the highest value job is for the construction and completion of Petronas Leadership Centre in Bangi. It carries a value of approximately RM310m, representing 62.3% of the newly awarded contracts. For the duration of the contracts, we anticipate earnings contribution of between RM24.8m to RM39.7m (assuming 5% to 8% margin). Based on straightline estimates, we expect the contributions to intensify in FY20 at around RM14.0m to RM22m.

Slight change to forecasts. The new orderbook wins are broadly in-line with our expectations. While we leave our FY19 estimates unchanged, we believe a slight adjustment of +2.0% to our FY20 number is warranted, to better reflect the marginal rise in orderbook value. SunCon is currently eyeing for overseas jobs in India and Myanmar, i.e. road projects (in India) and mixed developments (in Myanmar). Assuming the current tender validity is extended, any related job awards will likely be announced by year end. However, we noted that management remained conservative with its FY19 orderbook target that was left unchanged at RM1.5b.

Recommendation. SunCon has managed to secure RM1.5b worth of new jobs in FY19, a strong testament to its replenishment capability. Its ability to clinch sizable jobs in the light of challenging market is laudable. In line with the higher forward earnings, we raised our TP to RM2.21, after pegging our FY20 EPS to a higher PE of 18x (+1std of 1- year average). The higher multiple is reflective of the improved sector wide sentiment for construction, following the return of ECRL and continuation in Bandar Malaysia projects, as well as the strength of SunCon replenishment capability. Moreover, we upgrade of recommendation to a BUY as the expected total return now exceeds 10%.

Source: MIDF Research - 1 Jul 2019