KEY INVESTMENT HIGHLIGHTS

• SunCon booked lower revenue at RM485.94 (-22.4%yoy) in 4QFY19

• Slower construction activities

• Precast segment has shown an improvement

• 7sen/share dividend declared

• Maintain BUY call with unchanged TP of RM2.21

SunCon booked lower revenue in 4QFY19 at RM485.94 (- 22.4%yoy) on the back of lower contribution from construction division. Cumulatively for FY19, the quantum shrank -21.6%yoy to RM1.8b. As for the group`s PATANCI, it registered RM31.64m (- 13.5%yoy) in 4QFY19, registering cumulative earnings of RM129.3m (- 10.6%) in FY19. Nonetheless, this constitutes 101.1% and 109.9% of our and consensus full year estimates, in line with our expectation but slightly ahead of consensus.

Slower construction activities. SunCon’s construction segment, which contributed 90.7% of total revenue during the quarter, reported revenue growth of -26.0yoy to RM440.5m in 4QFY19. This decline was due to the majority of existing projects which are at its initial stages. Likewise, on yearly basis, the segmental revenue posted a decline of - 23.7%yoy to RM1.62b. However, forward earnings visibility is secured by the group’s outstanding order book totaling RM5.2b. Moreover, it is also notable that SunCon secured a total of RM1.8 billion new contracts amid challenging environment in FY19.

Precast segment has shown an improvement as it recorded higher revenue higher by +47.9%yoy to RM45.4m in 4QFY19 attributed to (1) present order book, and (2) old projects with slimmer margins were completed. At pre-tax level, this segment managed to reverse its loss from last year by recording RM2.5m PBT (+>100%yoy) in 4QFY19 from -RM2.9m LBT in 4QFY18. On the back of secured new order book, we anticipated better contribution from precast segment in 1HFY20.

7sen/share dividend declared. The group declared a second interim single-tier dividend of 3.5sen per ordinary shares for the financial year ended 31 December 2019. The entire amount of RM45,127,569 is expected to be paid on 8 April 2020. Altogether, the group has announced 7sen/share dividend for FY19.

Earnings impact. We made no adjustments to FY20F earnings as the results were in line with our expectation.

Recommendation. We maintain our BUY call with unchanged TP of RM2.21 pegging its FY20F EPS to PE of 18x (+1std of 1-year average). The higher multiple is reflective of the broad-based improvement in industry sentiment, following the resumption of ECRL and continuation in Bandar Malaysia project as well as potential return of other big infrastructure projects.

Source: MIDF Research - 21 Feb 2020