Sunway’s RM2.3 billion LRT3 award wins analysts’ approvals

KUCHING: Sunway Construction Group Bhd’s (SunCon) recent RM2.3 billion Light Rail Transit Line 3 (LRT3) award has won the hearts of industry analysts, causing an across the board earnings estimate and target price (TP) upgrades for the group and its stock.

To recap, the group had on October 5 announced that their subsidiary Sunway Construction Sdn Bhd (SCSB) had accepted a letter of acceptance by Prasarana Malaysia Bhd for Package GS07-08 for the LRT3 from Bandar Utama to Johan Setia for a total contract sum of RM2.3 billion.

The package involves the construction and completion of guideways, stations, cable-stayed bridge over the Klang River, park and rides, ancillary buildings and other associated works.

“The Project is for a period of 36 months and is expected to be completed by the fourth quarter of 2020 (and) upon the award of the Project, SunCon’s outstanding order book as at to-date amounts to RM6.5 billion,” said the group in a bursa filing.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), SunCon’s current outstanding orderbook is expected to provide the group earnings visibility for the next two to three years.

“Going forward, we believe that SunCon might look to focus on its on-going projects and more selective in their future job selections, which command better margins.”

And just with that, SunCon has exceeded all initial expectations from industry analysts on an orderbook replenishment of circa RM2.0 billion for financial year 2017 (FY17), prompting them to raise their FY17 orderbook replenishment to between RM3.8 and RM4.0 billion.

Kenanga Research raised their FY18E earnings for SunCon by 18 per cent, while AmInvestment Bank Bhd (AmInvestment Bank) has raised their FY17, FY18 and FY19 earnings forecasts by 0.4, 2 and 3 per cent respectively.

And in conjunction to this earnings upgrade, Kenanga Research has also reduced their FY18E orderbook replenishment for SunCon of RM2.0 billion to RM1.0 billion as they anticipate that the group may look into focusing on the execution of its on-going mega projects at this juncture.

And besides better earnings estimates, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) adds that the win has also allowed SunCon to increase its earnings diversity while reducing its reliance on its pre-cast sales to Singapore.

All in all, three analysts are highly positive on the LRT3 win and have upgraded their TP calls to the stock to reflect their new high expectations for the group. THE Kuala Lumpur Tin Market (KLTM) retreated from last week’s gains to close US$90 lower at US$20,850 per tonne yesterday on a technical correction, a dealer said.

He said the performance of the KLTM was in tandem with the metal price last Friday on the