Sunway Construction: Buy

Kenanga Research has made an “Outperform” recommendation for Sunway Construction Group Bhd (Suncon) with an SoP-derived TP of RM1.52 anchored to unchanged 16x FY22E construction earnings and 10x precast segment earnings.

The research house said that its risks include fresh stricter lockdown measures, lower-than-expected margins, and delay in work progress.

The 3QFY21 CNP of RM24.6 million increased 214% QoQ mainly due to:  recalibration of profit margins as explained above, and  2QFY21 dragged down by a one-off bank upfront charge of RM5.7 million as Suncon reached financial close for two of its Indian Highway project.

Net cash level* of RM390m (+RM172m from 2QFY21) remains healthy as Suncon received a sizable payment for its LRT3 progress work during the quarter.

It said the earnings outlook for 4QFY21. We anticipate 4QFY21 earnings to come in strong at c.RM35m in the absence of lockdowns and operations being back at full swing as all their workers have been fully vaccinated.

Note, Suncon’s construction arm has been operating at 100% since early September while its precast segment has been operating at 100% since late September.

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