Sunway Construction (SCGB) has secured a job from Sunway Flora. The value of the contract is MYR278m, with an estimated timeframe of 36 months from 1 Nov 2022. The job is related to the main building works for the proposed development of two blocks of residential condominiums which consists of podium, carpark, common facilities and swimming pool on the land located at Jalan Tiara, Taman Mutiara, Bukit Jalil.
RHB Reseach has maintained BUY rating on Sunway Construction and target price (TP) of MYR1.93, 25% upside with c.4% yield.
Further details. The profit before tax (PBT) margin for this job is expected to range 5-8%. This latest job win also brings SCGB’s YTD wins to MYR881.3m (vs RHB’s FY22 job replenishment target of MYR1.5bn). As such, the research house estimates SCGB’s latest outstanding orderbook to be at c.MYR4.4bn, which should support earnings visibility well into FY24. All in, jobs that were internally secured from its parent make up c.40% of the total new job wins in FY22.
Separately, SCGB announced that it has accepted the letter of award worth MYR185m by Sharp Ventures Solar (SVS) involving EPCC works on a solar photovoltaic energy-generating facility, with ancillary equipment and facilities with generating capacity of 50MW located in Kapar, Klang. However, the letter of intent for this job was issued by SVS on 27 Dec 2021. Therefore, it has been accounted for as part of SCGB’s FY21 new job wins. If the job was to be considered as a new contract won in FY22, the new job orders for SCGB would be MYR1.1bn – which is still within the research house’s FY22 contract replenishment target.
Prospects. Despite the highly possible delay of the award for Mass Rapid Transit 3 (MRT3) civil work packages to 1Q23 (from 4Q22), it is believed that our FY22 replenishment target of MYR1.5bn will likely be met. This is backed by the group’s MYR1-1.5bn tenderbook, of which the contents are related to factories and data centres. Moreover, its listed parent should continue to support earnings visibility whereby c.46% of its orderbook comes from internal building contracts from its parent company.
Forecasts and valuation. RHB Research makes no changes to its earnings forecasts, as the latest job win is within its FY22F job replenishment target of MYR1.5bn. Its valuation target P/E of 15.5x, which is pegged to its FY23F EPS, remains unchanged. The valuation target is fair, considering SCGB’s strong orderbook/revenue cover of c.2.6x, backed by a robust balance sheet with a war chest of c.MYR316m. All in, its TP of MYR1.93 remains unchanged after imputing a 4% premium to ESG scoring methodology. Valuations appear undemanding, as the stock is trading at 13.3x FY23F P/E, at -0.5SD from its 5-year mean.
Key risks include the project delays and a prolonged period of high material costs.
