CIMB Research expects stronger quarters ahead for Sunway, driven by construction and healthcare.
KUALA LUMPUR: Having secured the RM781mil contract for the development of the Tenaga Nasional HQ campus (Phase II), Sunway Construction remains on track to achieve its RM1.5bil replenishment target for FY19E, says Maybank Investment Bank Research.
The research house said on Wednesday its orderbook of RM6bil as of YTD-Feb 2019 should provide near-term earnings visibility. However, significant precast recovery would only be seen in 2020.
“We adjust our FY19E/FY20E earnings downwards by 2%-4% after lowering our margin assumptions for precast. Our target price of RM1.70 pegged to 14 times FY19 price-to-earnings ratio (-one standard deviation) is unchanged,” it said.
Maybank Research said aside from the Tenaga project, the remainder of SunCon’s RM1.5bil target could potentially come from internal projects such as a hospital in Kota Damansara and a property project in Wangsa Maju.
Externally, SunCon has also begun making forays into Myanmar and is targeting to secure its first project in 2019, which could potentially be a property/hospital job.
“SunCon will likely partner a local player in a JV, of which SunCon will hold the minority stake,” it said.
Maybank Research understands that earnings for the precast division have yet to recover in 4Q18 and will likely remain weak into FY19E.
To recall, the current projects being recognised are yielding low margins due to the higher steel bar price locked in and lower pricing from stiff competition. The projects secured in FY18E which have better margins are only expected to significantly contribute in FY20E.
“As such, we expect the precast division to only show marginal improvements in FY19E.
“We do not foresee any surprises in the upcoming 4Q18 results, with SunCon expected to report flattish QoQ earnings within the range of RM36mil to RM40mil. This should bring its full-year earnings close to our FY18 estimate of RM148mil.
In FY19E, earnings will continue to be supported by construction as precast will remain weak. We lower our FY19E/FY20E net profit by 4%/2% after revising down our EBIT margins for the precast division by 10ppts/8ppts respectively, taking into account the slower-than-expected recovery at its precast division,” it said.
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