SUNWAY Construction Group Bhd is well-positioned to capture opportunities as the construction sector is moving into a new growth cycle, according to RHB Investment Bank.
“As we believe the sector is moving into a new growth cycle, SunCon is well-positioned to capture opportunities. This counter is still our sector top pick,” said RHB.
This is despite SunCon’s work package for the Light Rapid Transit 3 (LRT3) project being revised down about 40% to RM1.3 bil. According to RHB, this brings the current outstanding orders from this project to RM706 mil.
“We note that the contract sum is final, which should allow earnings to be progressively recognised undisrupted. Based on the current progress, it is on track to meet the completion target, which is in 2023.”
“We understand from management that higher progress billings are expected in 2021, as works move to a peak cycle,” said RHB.
The research house also believes that the precast segment should see a recovery by the end of the year, considering about 80% of the projects in Singapore that SunCon is involved in have been approved to continue.
“This is a significant improvement compared to only 19% being approved in May. According to management, the contribution from this segment will likely improve from 4Q20 onwards,” said RHB.
The opening of SunCon’s new Integrated Construction Precast Hub (ICPH) plant is scheduled for mid-2022, with construction works expected to be completed near end-2021. The payback period for this plant is around 10-12 years, on a S$80 mil investment cost, according to RHB.
RHB also noted that SunCon has secured about RM1.5 bil in new orders year-to-date, with the biggest one clinched so far being the construction of a highway in India, which has a contract value of RM508 mil.
“Earnings during the 2-year construction phase will be booked progressively until completion. Thereafter, it will be followed by 15 years of maintenance works, which would allow SunCon to derive an income of RM4.1 mil a year.”
“The commencement of construction works has been slightly delayed to 1Q21, due to Covid-19. SunCon expects to sign the concession agreement soon,” said RHB.
The research house also noted that SunCon has 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.
“Moving forward, other potential new jobs include the construction of hospitals in Penang and Johor. It is also exploring options to participate in some Penang transportation projects,” said the research house.
RHB maintains a buy call on SunCon, with a target price of RM2.09.
At the end of the morning’s trading, SunCon’s shares were last done at RM1.88, down a sen, with 11,800 shares traded. – Sep 8, 2020
