SUNCON has bagged work packages worth RM605m from the Johor Bahru – Singapore Rapid Transit Systems Link project (RTS Link) - lifting its YTD job wins to RM663m and its outstanding order book to RM11.9b. We maintain our earnings forecasts (which already reflect new jobs), TP of RM2.13 and OUTPERFORM call.

SUNCON has secured Package 1B and Package 5 of RTS Link worth RM605m. Package 1B entails the advance works for a station and viaducts while Package 5 involves the construction of terrestrial viaducts and its ancillary structures. These works have a construction period of 26 months and are scheduled for completion by 2QCY25.

We are positive on the wins which bring YTD replenishment to RM663m – accounting for 30% of our FY23F target of RM2.2b (company is targeting RM2b), and lifts its outstanding order book by 5% to RM11.9b. The EBIT margin of 5%-8% is in line with our assumption of 7.5%.

For the rest of the year, we anticipate replenishment opportunities for more data centre building jobs, MRT3 and contracts from related parties.

We maintain our earnings forecast and TP of RM2.13 based on PER of 16x on FY24 EPS. We like SUNCON for: (i) its strong replenishment pipeline from parent SUNWAY, (ii) its dominant position in the local construction space with extensive capabilities and track record in building, infrastructure, solar, mechanical, electrical and plumbing works, and (iii) its strong balance sheet that allows participation in deferred payment model projects. We accord a 5% premium to its TP given a 4-star ESG rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Risks to our call include: (i) sustained weak flows of construction jobs from public and private sectors, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rising cost of building materials.

Source: Kenanga Research - 24 Mar 2023