KUALA LUMPUR: Sunway Group’s 1Q18 core net profit made up 20% of CIMB Equities Research consensus’ full-year numbers.
The research house said on Tuesday the results were broadly in line as it expects stronger quarters ahead. Construction’s 40% revenue surge outpaced other divisions.
Overall group earnings before interest and tax (EBIT) margin softened to 8.3% vs CIMB Research’s forecast of 9.3% for FY18F.
“We expect margins to improve due to stronger higher-margin construction billings and overseas property earnings in the coming quarters,” it said.
CIMB Research said that since January, 54.4%-owned Sunway Construction Group Bhd
has won three internal contracts worth a combined RM677mil, including the most recent RM180mil contract to build Sunway Medical Centre phase 1 in Penang.
With an outstanding order book of RM6.3bil, this translates to a solid order book-revenue cover of 2.9 times.
The 45% of total order book comprise civil and infrastructure works. Sunway Construction’s order book replenishment target for FY18 of RM1.5bil to RM2bil remains intact.
“Post-GE14, we believe upside to rail jobs could be at risk given that all mega jobs including rail will be reviewed.
“This may impact the rail job outlook of Sunway Construction. Via Sunway Construction, the group remains one of the existing major rail LRT and MRT contractors with a stellar execution track record and is likely to be one of the major beneficiaries of future rail contracts.
“YTD, Sunway Construction has not submitted any tenders for ECRL and MRT 3, though, via a four-company consortium, it was knocked-out of the tender round of the HSR PDP scope,” it said.
CIMB Research does not foresee any immediate risk for its property segment with the new government in place.
Sunway’s property development arm is aiming for higher sales of RM1.3bil in FY18. To achieve this target, it is looking to launch RM2bil worth of residential and commercial properties, a marked increase from FY17’s RM1.1bil. The 1Q18 effective unbilled sales stood at RM811mil.
“We maintain our FY18-20F EPS and Hold call but raise our target price as we update for balance sheet items and the market caps of its listed entities – still pegged to a 30% RNAV discount.
“Post-GE14, we continue to expect sentiment on contractors/property developers to be weak and as such, we foresee limited share price upside.
“While a likely recovery in property demand would benefit Sunway Bhd’s property sales, upside risk to our call revolves more around the construction outlook, which would only be clearer upon completion of the review of mega projects by the newly-elected government.
“The continuity of government jobs will depend on the new government’s priorities, with more visibility likely only emerging with the tabling of Budget 2019 in 4Q18,” it said.
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