Recent contract wins make SunCon a ‘buy’

PETALING JAYA: Analysts are positive over Sunway Construction Group Bhd’s (SunCon) recent job win of RM74.77 million to undertake substructure, earthworks and piling works for a mixed development project in Jalan Hang Tuah/Jalan Pudu from Ahmad Zaki Sdn Bhd, earning the stock a “buy” call.

Both HLIB Research and AmBank Research opined that the contract win has boosted SunCon’s order book.

HLIB Research said that SunCon’s order book has hit an all-time high, having surged 56% from RM4.3 billion in Q2’16 to RM6.7 billion in Q2’17.

The group, which recently bagged two sizeable projects, namely LRT3 and PPA1M, has seen its order book value surpass management guidance of RM2 billion.

Analysts estimate SunCon’s year-to-date contract wins to range between RM3.7 billion and RM3.86 billion.

AmBank Research noted that its recent job wins coupled with an outstanding order book value of RM6.7 billion, is positive for the group.

“The earnings upgrade is to reflect the upward revision in our job replenishment assumption for FY17F to RM3.9 billion. Meanwhile, we are keeping our assumption for job wins in FY18-19 at a more normalised level of RM2 billion annually.”

The research house, which maintained a “buy” call for the stock at a higher target price of RM2.70, said the group poses strong prospects for new job wins considering the number of mega infrastructure projects especially in the rail sector. It also displays a good earning visibility underpinned by a sizeable outstanding order book, which will keep it busy for the next two to three years.

On another note, HLIB Research said any further job wins will provide an upside to SunCon’s earnings forecasts.

Maintaining a “buy” call at RM2.59, it said SunCon continues to surprise positively with its job-winning capability as well as its reputation as a well-managed contractor with strong execution ability.

“We reckon that our premium valuation yardstick for SunCon is justified given its superior return of equity of 27% which is more than double of its peer’s average and its healthy balance sheet with net cash position of RM364 million (RM0.28/ share).”