KUALA LUMPUR: Sunway Construction Bhd's (SunCon) RM1.7bil contract with Yellowwood Properties Sdn Bhd lifted its orderbook for FY22 to surpass expectations.
According to Hong Leong Investment Bank (HLIB) Research, the contract boosted the construction group's total wins in FY22 to RM2.6bil, beating its forecast of RM900mil and management guidance of RM2bil.
This brought the group's total orderbook 42% higher to RM5.7bil, which translates to 3.3x cover on FY21 revenue.
HLIB said earnings before interest and tax is expected to be in the range of 5.8% with earnings recognition supercharged with a short construction period relative to the contract value.
In addition, it expects SunCon to secure additional works should Yellowwood secure expansion opportunities for the project.
"We increase FY23 & 24 core PATAMI forecasts by 14.2% and 30.3% respectively, post-incorporating the latest contract win," said HLIB.
Following the earnings adjustment, it maintained its "buy" call on the stock with a higher target price of RM2.06.
HLIB said its valuation does not factor in the final engineering, procurement and construction agreement with Toyo Ink worth RM5.8bil, expected by 3Q23. Financial close for the deal could come in 1Q23, it said.
The finalisation of the agreement would result in SunCon's unbilled order book doubling to a record high of over RM10bil.
HLIB added that SunCon presents a safer exposure to future infrastructure project rollouts, backed by strong support from parent-co.
"Nevertheless, our call is premised on no disruptive infrastructure policies from the new government," it said.
