Kenanga Research said it was positive on the contract win bringing the group’s FY22 replenishment to RM8.6bil.
PETALING JAYA: Sunway Construction Bhd‘s (SunCon) latest contract offers high margins and lifts its order book to RM11.7bil, but analysts have mixed views on the development.
The company secured its maiden data centre contract worth RM1.7bil and finished 2022 “with a bang”, chalking up a record RM8.6bil worth of new job wins during the year, said Kenanga Research.
“We are positive over this latest fast-tracked contract (18 months) which offers high margins and lifted its outstanding order book to an all-time high of RM11.7bil.
“We raise the financial year 2023 (FY23) earnings by 9%, lift our target price by 10% to RM2.13 from RM1.93, and reiterate our ‘outperform’ call,” it said.
In its report, Kenanga said it was positive on the win bringing the group’s FY22 replenishment to RM8.6bil.
This includes a preliminary RM6bil Vietnam power plant contract agreement inked, surpassing SunCon’s internal target of RM2bil and the research house’s assumption of RM1.5bil for FY22.
“Consequently, SunCon’s outstanding order book has expanded to a record high of RM11.7bil.
“Given the fast-tracked nature, large-scale and high technical requirements for this latest contract, we believe the earnings margin is skewed towards the upper end of the usual 5% to 8% range guided.”
Kenanga said it liked SunCon for its strong replenishment pipeline from parent Sunway Group, its dominant position in the local construction space with extensive capabilities and track record in building, infrastructure, solar, mechanical, electrical and plumbing works, and its strong balance sheet that allows it to participate in deferred payment model projects.
It does, however, warn of sustained weak flows of construction jobs from public and private sectors, project cost overruns and liabilities arising from liquidated ascertained damages and rising cost of building materials.
In its report, MIDF Research was less optimistic and said it was maintaining its earnings estimates and target price for SunCon despite the new contract.
On the group’s other ventures, it said: “It is currently negotiating the terms and conditions for the engineering, procurement and construction of a coal-fired power plant at the Hau Giang Province in Vietnam, a project worth US$2.2bil (RM9.69bil), which will be undertaken via a 60:40 joint-venture with Power Engineering Consulting Joint Stock Company 2, a power company listed on the Ho Chi Minh Stock Exchange.
“In Malaysia, SunCon’s prospects would come from internally secured jobs from Sunway Group and potentially one of the main MRT3 packages,” MIDF said, adding that the group submitted its bids for package CMC301 and CMC302, which it estimates to be RM3.1bil and RM14.8bil, respectively.
The research house’s target price for the company’s stock remains unchanged at RM1.87.
