By FARA AISYAH
Hong Leong Investment Bank Bhd (HLIB) has maintained its ‘Hold’ recommendation for Sunway Construction Group Bhd (SunCon) with an unchanged target price (TP) of RM1.81.
The TP is based on an unchanged 16.5 times price-to-earnings (PE) multiple tagged to financial year 2019 (FY19) earnings.
Despite the expectations of robust job flows from Sarawak for the company in the near term, HLIB said SunCon is also cautiously evaluating tender opportunities in the state given a potential low construction margin caused by overly competitive bidding.
“We expect the precast segment profit before tax margin to normalise back to 10%-15%, starting from the second half of 2019 due to recovery of product pricing.
“Management does not expect any more contracts from its parent company in FY19 and hence the balance to its replenishment target is expected to come from overseas contract, piling jobs and also precast orders from Singapore,” HLIB said in a report last week.
The investment bank added that SunCon is a well-managed contractor, and that the valuations are fair at current levels.
SunCon is expected to bid for large-scale solar 3 (LSS3) jobs worth RM2 billion as engineering, procurement, construction and commissioning contractor via a joint venture with foreign partners that have the required experience and technical expertise.
Total capacity for the LSS3 is 500MW and the quota offered to each developer is 100MW.
The tender is closing in August 2019 and the outcome is expected by February 2020.
SunCon is also actively looking for hospital job opportunities given that as much as RM29 billion has been budgeted by the government in 2019 for new hospitals.
Given the slowdown in the domestic construction industry, SunCon is actively exploring for regional opportunities particularly in India and Asean.
The construction company is also actively looking for piling jobs in Singapore where there is an undersupply for piling capacity in the country at the moment.
The management has reiterated its FY19 orderbook replenishment target of RM1.5 billion, of which, RM967 million has been achieved year-to-date.
Its outstanding orderbook currently stands at RM6.2 billion, translating into healthy level of 2.7 times cover of FY18 revenue.
For FY18, SunCon’s net profit rose 9.37% year-on-year (YoY) to RM144.69 million, while revenue increased 8.65% YoY to RM2.26 billion.
Higher revenue for the year was mainly due to construction segment which compensated the reduction in revenue from precast segment.
The group’s overall margin for FY18 was the same as the corresponding full year of the preceding financial year.