Upside for SunCon in FY20 seen
PETALING JAYA: Hong Leong Investment Bank (HLIB) Research sees upside in Sunway Construction Group Bhd (SunCon) for FY20 given its sizeable outstanding tender book of RM7.4 billion as of September 2019, which is buoyed by job flow recovery.
The group aims to secure RM2 billion worth of jobs in FY20, which does not include potential contract wins from the upcoming East Coast Rail Link (ECRL) tenders, Penang Transport Master Plan (PTMP) and foreign jobs.
It has exceeded replenishment targets over the past three years.
Meanwhile, Suncon has pencilled in RM800 million worth of jobs to be awarded by its parent company, which translates into roughly 40% of its job wins for FY20.
“For external building jobs, management is expecting RM500 million worth of awards this year to be contributed by superstructure works for Putrajaya TOD (piling was done by SunCon) as well as tender for construction of KLCC retail podium (car park was constructed by SunCon),” said HLIB Research.
On its geotechnical side, the group aims to win RM300 million worth of jobs as the outlook for piling in Singapore looks positive on the back of infra project rollouts compounded by a shortage of piling capacity. The remaining RM400 million will be from solar related jobs and precast.
HLIB Research foresees profit before tax margin for the precast segment to normalise to 10% in FY20 as contribution from old low-margin jobs taper off.
The group has also been actively exploring regional opportunities following the construction slowdown post-general election.
SunCon has recently submitted a tender for an Indian highway worth RM500 million after repeated extensions by the authorities and it is understood that the funding model will enable the group to undertake no traffic volume risk.
HLIB Research said the group’s existing order book of RM5.2 billion translates into a decent level of 2.3 times cover based on FY18 revenue.
Overall, it is maintaining a “buy” call on SunCon with an unchanged target price of RM2.30.
“We like SunCon due to strong balance sheet, positive earnings trajectory and strong support from parent company.”