Results Review

• Sunway Construction’s (SUNCON) FY16 net profit of RM123.5mn came in slightly below our expectation but within consensus estimate, accounting for 94.2% and 97.0% of ours and consensus full-year estimates. The variance was mainly due to lower-than-expected revenue and margin.

• A second interim dividend of 2.5sen/share was proposed, bringing FY16 full-year dividend to 5sen/share, versus 4sen/share a year ago.

• YoY, FY16 net profit was 2.9% lower on the back of lower revenue (-6.7%) and higher taxation. At PBT level, FY16 earnings improved by 9.2% to RM153.7mn with PBT margin improved by 1.2%-pts to 8.6%. Higher construction profit (+24.7%) was offset by lower profit in the precast segment (-29.0%). The lower margin in the precast segment was due to stiffer competition and higher margin recorded in FY15 as a result of finalisation of accounts.

• QoQ, 4Q16 net profit was marginally higher (+2.9%) at RM32.1mn. It achieved record quarterly revenue of RM553.1mn since its listing in July 2015 as some of its projects gathered momentum.

• Its net cash position eased slightly from RM331.6mn a quarter ago to RM329.3mn (25.5sen/share)

Impact

• We adjust our FY16 order book replenishment figure from RM2.6bn to RM2.7bn to reflect the actual amount of new contracts secured in FY16. As a result, FY17/FY18 earnings were raised by 2.8% and 0.8% respectively.

Outlook

• The group secured RM2.7bn new orders in FY16. Its outstanding order book stood at RM4.8bn (see Exhibit 1), sufficient to provide earnings visibility for the next 2 to 3 years.

• We expect the group to register strong growth in FY17, backed by strong outstanding order book and acceleration in construction progress.

Valuation

• Following the earnings revision, we raise our target from RM1.85 to RM1.90, based on unchanged 15xCY17 EPS. The closing price of SUNCON at RM1.80 was just one sen away from its historical high. After the recent rally in share price, we downgrade the stock from BUY to HOLD as it is trading close to its fair value.

Source: TA Research - 24 Feb 2017