SunCon up 5% after being touted as strong candidate forLRT3, MRT 2 projects

KUALA LUMPUR (Oct 2): Sunway Construction Group Bhd's shares rose as high as 5.22% following a report that the company is in good stead to participate in work packages for upcoming government infrastructure projects.

At 12.05pm, the stock gained as much as 6 sen to RM1.21, before paring gains. It settled at RM1.20 with a total of 4.66 million shares done.

The construction arm of Sunway Group was relisted on Bursa Malaysia on July 28, after it was privatised 11 years ago.

In its report today, research firm Hong Leong Investment Bank Bhd (HLIB) said as the company has experience with all three major public transport projects — Light Rail Transit (LRT), Mass Rapid Transit (MRT) and Bus Rapid Transit (BRT) systems — it has a strong footing to participate in the upcoming work packages for the LRT Line 3 and MRT Line 2 projects which are expected to begin next year.

"Plans to implement 12 more BRT lines should augur well for Sunway Construction as it is the only contractor that has undertaken such a project," it added.

However, the research firm noted that Sunway Construction's order book stands at RM4.3 billion, representing a 2.3 times cover ratio on financial year 2014 (FY14) revenue.

This is lower than its peers' average of 2.7 times, underlining the fact that Sunway Construction's year-to-date (YTD) job wins of RM2.2 billion merely makes up for the shortfall witnessed last year at RM763 million.

HLIB projects an 8% decrease year-on-year in earnings for financial year 2015 (FY15) due to the lagged impact from last year's weak job clinches, absence of joint venture contributions from property development and downward normalisation of its margins of its pre-cast products, which are primarily used for the construction of Singapore's Housing and Development Board (HDB) flats.

"Overall, we project pedestal three-year earnings compound annual growth rate (CAGR) of only 2%," the report stated.

"Unless Sunway Construction can replenish its order book significantly above its burn rate, earnings will remain flattish," it added.

Nevertheless, the research firm said Sunway Construction's price to earnings ratio (PER) at FY15 to FY16 stands at 13 times and 11.9 times respectively, with its pricing "close to perfection" for a mid-cap contractor.

It also said the company's dividend yield was "decent" at 2.7% and 2.9% for FY15 to FY16 respectively based on a minimum payout ratio of 35%.

HLIB initiated coverage on the stock with a "hold" rating and a target price of RM1.25. -- theedgemarkets.com