Sunway Construction ‘riding on infrastructure boom’ — Kenanga Research

KUCHING: Sunway Construction Group Bhd (Sunway Construction), is currently riding on the infrastructure boom as the group possesses excellent track records in three major urban public transport projects, namely LRT, MRT and BRT.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) is confident that Sunway Construction will continue to benefit from infrastructure projects under the 11th Malaysia Plan (11MP).

For 2016, Kenanga Research expected Sunway Construction to bag LRT3 and stand a high chance in the Pan Borneo highway after securing RM1.2 billion in MRT2 project earlier this year.

“That said, we also understand that the government is planning to implement the 34 kilometre (km) KL-Klang BRT Corridor to ease the traffic congestion; while there are no specific timeline for the execution for this particular project, we believe Sunway Construction will stand out from the other contractors in terms of bidding, due to their excellent track record in the Sunway-USJ BRT Line,” the research arm said.

According to Kenanga Research, as at end-first quarter of 2016 (1Q16), Sunway Construction’s outstanding orderbook stood at RM5 billion with a replenishment potential up to RM6 billion-RM7 billion.

The research arm noted that this provides earnings visibility for next two to three years.

“Out of the RM5 billion, 26 per cent is from infrastructure, 38 per cent external building related jobs, 28 per cent from its parent Sunway Bhd, and eight per cent from pre-cast division.

“In terms of replenishment, the group has already secured approximately RM1.9 billion worth of new orders to date,” the research arm said.

Kenanga Research is confident that Sunway Construction will easily achieve RM2.9 billion new wins in financial year 2016 (FY16), as the research arm is anticipating Sunway Construction to bag LRT3 which we estimate to be worth approximately RM1 billion.

Hence, the research arm believed that Sunway Construction should be able to surpass its FY16E replenishment target of RM2.9 billion which would allow them to maintain their outstanding orderbook at a steady level of circa RM5.5 billion by year end.

On another note, Kenanga Research said that currently, Sunway Construction’s precast division only contributes eight per cent to the group’s total the group’s outstanding orderbook of RM5 billion.

“However, in terms of profit contribution, it made up 55 per cent of the group’s FY15 pretax profit of RM140.8 million,” the research arm said.

“Management expects the orderbook to continue to sustain at this current level, namely at RM300 to RM400 million every year, driven by resilient precast concrete products demand in Singapore that is largely used for public housing schemes which we believe will continue to be Sunway Construction’s core earnings driver.”

The current orderbook size of RM5 billion provides Sunway Construction earnings visibility of two to three years and Kenanga Research estimated net profit of RM133.5 million-RM149.6 million for FY16-17E, which represents growth of five per cent to 12 per cent.


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