PETALING JAYA: Sunway Construction (SunCon) Group Bhd’s RM604.9mil contract win from Malaysia Rapid Transit System Sdn Bhd is expected to generate total net earnings of RM30.3mil for the group throughout the construction period.
Following the job win, TA Research, in a report, said SunCon’s total outstanding order book will stand at RM5.9bil.
“We maintain our financial year 2023 (FY23) to FY25 earnings forecasts as the job win is within our FY23 order book replenishment assumption of RM2.5bil.”
Meanwhile, Hong Leong Investment Bank (HLIB) Research said it was “positively surprised” by the contract win.
The research house said this was because the job did not form part of SunCon’s contract win guidance for FY23.
“The company’s guided construction earnings before interest and taxes margins are generally in the 5% to 8% range, which we believe is manageable.
“We do not foresee significant execution risks from the project, considering the packages are landed portions of the rapid transit system (RTS) and SunCon’s vast experience in railway construction.”
HLIB has a “buy” call on the company with an unchanged target price of RM1.94.
“We like the company due to safer exposure to future infrastructure project rollouts, strong support from its parent company (Sunway Bhd
) and the fact that it is poised to enter a stronger earnings cycle, driven by fresh contract wins.”The RTS job, which was secured by SunCon’s wholly-owned subsidiary, Sunway Construction Sdn Bhd, will be for a period of 26 months and is slated for completion by the second quarter of 2025.
The contract is for the proposed construction and completion of package 1B advance works for station and viaducts and package five terrestrial viaducts, as well as ancillary structures for the Project Rapid Transit System Link between Johor Baru and Singapore.
MIDF Research said it remained optimistic about SunCon’s prospects.
“Assuming that the project is to be completed by May 2025, our calculation based on a 6% margin shows that it will generate a profit of RM36.3mil for SunCon, of which the contribution will be about RM12.6mil in FY23, RM16.7mil (in FY24) and RM7mil (FY25).“We remain optimistic that SunCon is able to achieve its order book replenishment target of RM2bil this year, backed by internal job flows from the Sunway Group and the impending rollout of infrastructure jobs as announced under the revised Budget 2023.”
Additionally, the research house remains upbeat about SunCon’s overseas prospects.
“We are also pleased to observe SunCon’s aspirations in growing its overseas operations, with its ongoing negotiations for the US$2.2bil (RM9.7bil) power plant project in Vietnam that will be undertaken via a joint-venture arrangement.”
Meanwhile, Kenanga Research also said it is positive about SunCon’s RTS contract win.
“We like SunCon for its dominant position in the local construction space, with extensive capabilities and track record in building, infrastructure, solar, mechanical, electrical and plumbing works.”
The research house also liked the construction firm for its strong balance sheet, which allows participation in deferred payment model projects.
