Steady earnings flow for SunCon


On Dec 27, SunCon announced that it has received two letters of intent for the fourth cycle of large scale solar (LSS4) projects worth a cumulative RM385mil from Gopeng Bhd and Sharp Ventures Solar Sdn Bhd.The scope of works include engineering, procurement, construction and commissioning of solar photovoltaic, with a total capacity of 100MW.

PETALING JAYA: Sunway Construction Group Bhd’s (SunCon) latest job wins are expected to generate total net earnings of RM27.1mil throughout the construction period.

This is based on the assumption that the contracts offer a net margin of 4%, according to TA Securities Research.

On Dec 27, SunCon announced that it has received two letters of intent for the fourth cycle of large scale solar (LSS4) projects worth a cumulative RM385mil from Gopeng Bhd and Sharp Ventures Solar Sdn Bhd.

The scope of works include engineering, procurement, construction and commissioning of solar photovoltaic, with a total capacity of 100MW.

In a separate filing with Bursa Malaysia, SunCon also announced that it has entered into a supplemental agreement with Sunway South Quay Sdn Bhd, an indirect subsidiary of Sunway Bhd, to revise the scope of works and contract sum for the construction of a commercial mixed development in Bandar Sunway, Selangor.

Under the supplemental agreement, the contract sum has been revised to RM755.7mil from the original value of RM463.2mil.

These three contracts brought SunCon’s year-to-date job win to RM1.47bil.

“We have reduced our financial year 2021 (FY21) orderbook replenishment assumption from RM1.6bil to RM1.47bil to reflect the actual total job win in FY21.

“Consequently, earnings forecasts for FY21 and FY22 are cut by 2% and 3%, respectively,” TA Securities Research said in a note yesterday.

After revising its earnings forecasts, the research house reduced the target price for SunCon from RM1.64 to RM1.59 per share.

However, it has maintained its “hold” call on the company.

Meanwhile, Hong Leong Investment Bank (HLIB) Research described SunCon’s latest job wins as a “decent showing”.

It said the year-to-date contract win of RM1.47bil matched its previous target of RM1.5bil, but beat the current expectations of RM1.2bil.

Including the new orders, SunCon’s total orderbook increased to RM5.3bil, representing a healthy 3.4 times cover on its FY20 revenue.

“We do not foresee major hiccups considering the company’s good execution record and are within SunCon’s area of expertise.

“We believe the new contracts have also adequately accounted for high materials costs throughout 2021 with margin upside should prices weaken,” HLIB Research said in a note.

The research house has upped its FY22-FY23 earnings forecasts by 1.6% and 1.3%, respectively, after factoring the latest job wins.

“We have also proceeded to cut our FY22 replenishment assumption by about RM400mil as we had earlier expected the LSS4 contracts to come in FY22.

“We are pencilling in RM1.8bil of total orders for FY22,” it added.

In contrast to TA Securities Research, HLIB Research has raised its target price on SunCon to RM1.77 per share and maintained its “buy” call.

It pointed out that SunCon is well-positioned to partake in pump-priming initiatives should it happen.

“Its healthy balance sheet with a net cash position of 30 sen per share, existing presence in India and strong support from parent company Sunway Bhd should provide job flow clarity post-Budget 2022,” it added.

Sunway owns a 64.5% stake in SunCon.

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