Sunway Construction secures first overseas job for 2020
KUALA LUMPUR: Analysts at Kenanga Investment Bank Bhd (Kenanga Research) are optimistic on Sunway Construction Bhd (Sunway Construction) securing its first contract win of the year through its 60 per cent-owned Sunway Construction Sdn Bhd with a joint venture (JV) with India’s RNS Infrastructure Ltd (Consortium).
The JV has accepted a Letter of Award issued by the National Highways Authority of India (NHAI) to undertake a 36.8km highway project in the state of Tamil Nadu in India for a total contract sum of 864.51 crore rupees or about RM498.3 million, in addition to a 15-year operating and maintenance contract at about RM4.1 million per annum.
The construction is expected to commence in October this year and to be completed within two years. A concession agreement will be signed in May 2020, it said.
The remaining 40 per cent stake in the Consortium is held by RNS, an Indian local company owned by RN Shetty family which is involved in a wide range of infrastructure construction services such as construction of dams, highways, bridges, tunnels, power houses and residential buildings.
To note, RNS was Sunway Construction’S first jointventure partner when the group ventured into India in June 2001 for its first two infrastructure projects.
“The project will be operated under the Hybrid Annuity Model (HAM) for a concession period of 15 years plus two-year construction period,” it said in its notes. “Under the HAM, NHAI will pay 40 per cent of the project cost in the first two years during the construction period in five equal instalments with the remaining 60 per cent to be paid over 15 years as fixed annuity amount plus interest which is benchmarked at RBI (Reserve Bank of India) rate three per cent.
“The project has a price fluctuation clause throughout the two-year construction period and 15 years’ maintenance period. There is no toll right for the concessionaire.”
With the India highway job in hand, Kenanga Research said Sunway Construction was on track to hit RM2 billion target in financial year 2020 (FY20).
This would bring its outstanding orderbook to RM5.7 billion.
“Sunway Construction is on track to meet its full-year new contract wins target of RM2b (which is also our assumption), after replenishing its orderbook by RM1.8 billion last year.”
Furthermore, AmInvestment
Bank Bhd (AmInvestment Bank) in a separate note believed the recent change in the political landscape has not altered the subdued outlook for the local construction sector.
“Given the still elevated national debt, coupled with the recent collapse of oil prices that will hurt petroleum revenues, we believe the government has very limited room for fiscal manoeuvre which means that it is unlikely to roll out new public infrastructure projects in a major way over the short term, such as the MRT3 and the KL–Singapore highspeed rail,” it added.
“We believe Sunway Construction can weather the sector downturn better given its proven ability to compete under an open bidding system, coupled with the availability of building jobs from its parent and sister companies under the Sunway Group.”