CIMB Research expects stronger quarters ahead for Sunway, driven by construction and healthcare.
KUALA LUMPUR: While Sunway Construction Group Bhd
’s (SunCon) core net profit of RM102mil in the first nine months of financial year 2017 (9M17) was within Kenanga Investment Bank Research’s expectation, it did not meet the consensus’ estimates.
In a note on Tuesday, Kenanga Research said SunCon’s 9M17 core net profit came in at 70% and 68% of its and consensus’ full-year estimates, respectively.
According to the research house, the shortfall in consensus estimates could be due to the weaker-than-expected performance from SunCon’s pre-cast division, owing to timing issues.
In 9M17, the construction company’s core net profit grew by 8% on a year-on-year (y-o-y) basis, primarily attributed to revenue growth of 7%, lower effective tax of 19% and improvement in pre-tax margin to 9%.
The improvement in pre-tax margins was attributable to better billings progress from its on-going projects such as the Mass Rapid Transit 2 project and the International School of Kuala Lumpur development, among others.
The group’s construction revenue growth of 17% in the nine-month period provided a safe cushion for the fall in its precast revenue, which fell by nearly 41%.
“SunCon’s outstanding order book now stands at RM6.8bil and this provides 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 jobs selections, which command better margins.
“Post results, there are no changes to our earnings estimates in the financial years of 2017 and 2018 (FY17-18),” stated Kenanga Research.
The research unit maintained its “market perform” view on the construction company and left the target price unchanged at RM2.29.
This was on the back of the group’s strong outstanding order book size and the potential recovery in its precast division where billings are expected in FY18.
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