MCO, COVID-19 to disrupt Suncon earnings for 2020

KUALA LUMPUR (April 16): Sunway Construction Sdn Bhd’s (SunCon) earnings will likely be reduced by between RM9 million and RM12 million per month, based on a net profit margin of six per cent with the Movement Control Order (MCO) remaining in effect, Affin Hwang Capital said.

It said the slow progress in billing for January and February due to festive holidays and the halt of construction works since March 18 would adversely impact its revenue.

“We cut our 2020 revenue forecast by two per cent to RM1.9 billion to reflect slower progress in billings due to the disruptions caused by the MCO and COVID-19,” the research house said in a note.

Affin Hwang noted that taking in lower revenue while incurring around RM20 million of fixed cost (including staff salaries, bonus provisions, and depreciation) per-month would hit SunCon's bottom line in the first quarter of 2020.

However, its fixed cost at about 15 per cent of the total cost indicates that its cost structure is relatively flexible.

SunCon it said, continues to pay its day-wage workers as goodwill, despite them not working during the MCO period.

Affin Hwang understands the construction company is applying to the authority to resume operations during the 15-28 April 2020 extended MCO period.

“A key requirement under the new government directive is the provision of central labour quarters (CLQ) for construction projects to resume work during the MCO.

“We gather that SunCon has CLQs for its LRT3, MRT2 and Johor projects. Hence, we believe the government will likely allow the projects to resume with strict guidelines to ensure social distancing of workers at sites”.

With a high order book of about RM5.5 billion, which is equivalent to sustain its construction activities, Affin Hwang recommended a “buy” call on the company with a target price of RM1.94.

At 9.35 am, shares of SunCon rose 1.14 per cent to RM1.77.

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