PETALING JAYA: Sunway Construction Group Bhd’s (SunCon) strong outstanding order book and a solid balance sheet make the company a formidable contender in the period leading up to project revivals.
RHB Research, in a report yesterday, said the company remains a beneficiary of local infrastructure jobs, evidenced by its previous experience participating in the MRT1, MRT2 and LRT3 projects.
“As we believe the sector is moving into a new growth cycle, SunCon is well-positioned to capture opportunities.
“Our optimism on earnings recovery, due to strength in work execution, aggressive tendering and the steady flow of in-house jobs, supports our 18-times 2021 price-to-earnings (PE) valuation.
“In our view, valuations remain attractive. The stock is trading at just 16-times 2021 earnings per share (five-year mean). This counter is still our sector top pick.”
RHB Research noted that SunCon remains interested in local rail projects.
SunCon reiterated its interest to participate in local rail projects including the Kuala Lumpur-Singapore High-Speed Rail, Johor Singapore Rapid Train System, East Coast Rail Link and Mass Rapid Transit 3.
“Other potential new projects include the construction of hospitals in Penang and Johor. It is also exploring options to take part in several transportation jobs in Penang.”
The research house also noted that SunCon has an outstanding order book of RM5.7bil.
“Positively, the unbilled amount still appears sizeable (higher than in 2018 and 2019), which lends longer earnings visibility to its construction division.
“We do not rule out the possibility of SunCon announcing another job win this year, potentially derived from its tenders related to the pre-cast division.”
On Wednesday, SunCon announced that its subsidiary Sunway Construction Sdn Bhd had accepted two letters of award from Sunway Velocity Two Sdn Bhd and Sunway Medical Centre Sdn Bhd for development works valued at RM865.87mil.
With the job wins, TA Securities said SunCon has secured RM2bil worth of new jobs year-to-date and has achieved its 2020 order book replenishment target of RM2bil set by the management.
“With a strong outstanding order book, solid balance sheet with strong net cash position, coupled with much better clarity on the roll-out of the Bandar Malaysia catalytic development, which we see as a rerating catalyst for the builder, we raise the target PE multiple for SunCon 16-times to 18-times and raise the target price from RM1.53 to RM1.72, based on 2021 earnings.”
Meanwhile, RHB Research said key downside risks include a failure to secure new contracts, a prolonged downturn in the retail and property markets and a longer than expected delay in the rollout of mega infrastructure projects.
“We understand that the labour shortage is not an issue in the peninsula, according to contractors. However, sudden restrictions on activities, possibly due to lockdown measures, if implemented, may present downside risks.”
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