SunCon grabs first win of 2019 with RM781 million Tenaga HQ job

KUCHING: Sunway Construction Bhd (SunCon) has grabbed its first win of 2019 with a RM781 million contract from Tenaga Nasional Bhd ( Tenaga) to build phase two of the TNB HQ Campus.

In a Bursa announcement, the construction giant announced that contract win which is one of their largest to date is expected to be completed within 26 months upon commencement.

Altogether, the development of TNB HQ Campus is estimated to carry a gross development value worth RM1.0 billion and with an assuming of pre-tax margin of 8 per cent, it would contribute circa RM211.6 million to SunCon’s bottom-line per annum.

While the win came as no surprise as it filled 52.1 per cent SunCon’s replenishment target of RM1.5 billion for financial year 2019 ( FY19), analyst Kenanga Investment Bank Bhd ( Kenanga Research) research was pleasantly surprised by the duration as the 26-month contract is 10 months shorter compared to their assumptions of 36 months which is standard for typical high-rise jobs.

“We believe that the shorter construction timeline is solely on superstructure works as the substructure works for the campus could be completed prior to this award,” explained the research arm.

Factoring a shorter execution timeline for this project, the research arm has raised their FY19 estimated core net profit for SunCon by 8 per cent.

The research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) on the other hand, did not make any changes to their earnings forecast but noted that SunCon’s unbilled job stood at RM6.0 billion and would likely sustain its earnings into FY21 as it equate to an admirable 2.9x cover to its FY17 revenue.

Looking forward at future contract awards, Kenanga Research expressed their concern that the outlook of the construction sector still remains uncertain as the government spending on infrastructure jobs is still tightened.

“However, we believe strong players like SunCon can weather through these challenging times given their strong parent support from Sunway Bhd and its competitiveness to secure huge jobs from the private sector.”

Agreeing with this, MIDF Research reiterates that SunCon’s strength in job replenishment capability will be well supported by its parent company Sunway and its strong fiscal position.

“SunCon’s strength is in the job replenishment capability that is well supported by the parent company. In our opinion, the benefit of internal job flows is farreaching, as we incorporate the uncertainties on near term public jobs. Having a net cash position is evidently positive, providing support to clinch and operate new projects.

“Moreover, the group’s healthy financial position and large order backlog should bode well with its future value accretion,” said the research arm.

With that said, MIDF Research reiterated their buy call on SunCon with an unchanged target price ( TP) of RM1.78 as they believe that the company’s prospects are positively intact.