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This article first appeared in The Edge Financial Daily on December 7, 2018

Sunway Construction Group Bhd
(Dec 6, RM1.49)
Maintain buy with an unchanged target price (TP) of RM1.86:
Sunway Construction Group Bhd (SunCon) announced that it has been awarded a RM100 million building contract from Sunway Bhd for development of office and serviced apartments that are located next to Sunway Velocity Medical Centre. The works are expected to be completed by end of April 2021. This construction job win brings the year-to-date (YTD) sum to RM1.5 billion, which is consistent with management guidance and the outstanding order book currently stands at around RM5.7 billion, which translates into three times cover on financial year 2017 (FY17) construction revenue.

We maintain our forecast as YTD job win is within our order-book replenishment assumption of RM1.5 billion. We maintain our “buy” rating with an unchanged TP of RM1.86 derived from 16.5 times price-earnings (P/E) multiple on FY19 earnings.

SunCon announced that it had been awarded a RM100m building contract from Sunway (Buy; TP: RM2.13) for development of office and serviced apartments that are located next to Sunway Velocity Medical Centre. The works are expected to be completed by end of April 2021.

This construction job win brings the YTD sum to RM1.5 billion, which is consistent with management guidance. The total outstanding order book currently stands at around RM5.7 billion, which translates into three times cover on FY17 construction revenue. We expect more jobs to come from its parent company (parent-co) Sunway going forward due to the reduction in government spending on public infrastructure projects and continued slowdown of the property market which result in less building jobs from external developers.

Given the slowdown of the domestic construction industry, SunCon is actively exploring regional opportunities, particularly in India and the Asean region. The company will collaborate with foreign partners in contract bidding to take advantage of local expertise.

We maintain our forecast as YTD job win is within our order-book replenishment assumption of RM1.5 billion. We assume no further contract win for the rest of the year and maintain our order-book replenishment assumption.

We maintain our “buy” rating with an unchanged TP of RM1.86. The TP is pegged at 16.5 times P/E multiple to FY19 earnings. SunCon remains as our top pick among local construction peers due to: i) healthy balance sheet; ii) pure construction play; and (iii) strong support from parent-co, which enables it to ride through current down cycle. — Hong Leong Investment Bank Research, Dec 6

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