Sunway Construction an apolitical pure-play contractor that provides good exposure
KUALA LUMPUR: Sunway Construction Group Bhd (Sunway Construction) is believed to be an apolitical pure-play contractor providing good construction sector exposure.
Affin Hwang Investment Bank Bhd (AffinHwang Capital), which hosted an investor meeting for Sunway Construction recently, also believed the group has strong prospects to replenish the group’s order book given its excellent track record.
Affin Hwang highlighted that Sunway Construction’s parent company, Sunway Bhd, plans to build five hospitals nationwide.
These will be in Sunway Velocity, Kuala Lumpur which is to be completed in the first quarter of 2019 (1Q19), Seberang Jaya, Penang (2020), Ipoh, Perak (2022), Damansara, Selangor (2023) and Iskandar Puteri, Johor.
“Each hospital will have about 250 beds and cost about RM250 million to RM300 million. Sunway Construction has the first right of refusal to build the hospitals, assuming it puts in a competitive bid.
“Its major ongoing in-house projects include Sunway Medical Centre Phase 4; Sunway Velocity hotel, office and medical centre; and Sunway Serene serviced apartments,” the research firm said.
According to AffinHwang Capital, Sunway Construction’s high remaining order book of RM6.14 billion, equivalent to three-fold the group’s 2017 revenue, provides good earnings visibility and should sustain its construction activities up to 2Q21.
“It has submitted tenders for over RM2 billion worth of projects. In addition to in-house projects, Sunway Construction is also bidding for external projects such as the Tenaga Headquarters redevelopment; Daya Bumi Phase 3 offices and hotel; and Bukit Bintang City Centre office tower.”
Affin Hwang further highlighted that although Sunway Construction and the group’s partners lost the bid to be the Project Delivery Partner (PDP) for the KL-Singapore High Speed Rail (HSR) project, it can still bid for station-building works and infrastructure works.
“There are six to seven stations planned and each costs about RM2 billion.”
The research firm assumed that Sunway Construction will secure RM2 billion in new contracts in both financial year 2018 estimate (FY18E) and FY19E.
Going forward, AffinHwang Capital expected an earnings before interest and tax (EBIT) margin of 7.7 to 8.3 per cent for the group’s construction division and 14.9-16 per cent for its precast concrete arm in FY18-19E. EBIT margin was at 7.1 per cent and 18.9 per cent respectively in FY17.
“We expect the overall EBIT margin to improve between 8.6 to 9 per cent in FY18 to FY19E as Sunway Construction has been selective in bidding for new jobs in order to preserve profit margins, while utilising value-engineering methods to improve profitability.”