Share
? Another contract. Sunway has secured a RM129m contract from private company PML Dairies Sdn Bhd for the construction of a dairy product factory in Klang, Selangor. The contract has boosted Sunway’s YTD new contracts secured to RM537m (see Table 2) and its outstanding construction orderbook by 6% to RM2.4bn (see Table 3). Assuming an EBIT margin of 5-7%, the contract will fetch a total EBIT of RM6.5-9.0m over the construction period of 12 months ending Jul 2011. We are positive on the development.
? Forecasts. No change in our earnings forecasts that already assume Sunway to secure RM1.5bn worth of new jobs in FY12/10.
? Risks to our view. The risks include: (1) New contracts secured in Var to Cons (%) FY12/10-12 coming in below our target of RM1.5bn per annum; and (2) Rising input costs.
? We are now upbeat on the construction sector. We foresee improved investors’ risk appetite for construction stocks following: (1) The massive underperformance of the sector vis-à-vis the market in 4Q2009 and 1H2010; and (2) A better sector news flow and new expectations on the heels of the recent announced 10th Malaysia Plan (10MP).
? High construction margins. Sunway’s construction margins will remain strong over the next few quarters thanks to strong contributions from the high-margin pre-cast concrete components contract in Singapore and Rihan Heights project of the Arzanah Development in Abu Dhabi, UAE.
? Strong property profits from Malaysia. We also expect strong profits from Sunway’s property business in Malaysia, driven by boutique
developments. On the heels of strong take-up for the recently launched RM165m Sunway Rydgeway in Melawati comprising 40 bungalows and 30 semi-detached houses, Sunway will over the next 6-9 months start to put onto the market similar products in Templer, Taman Equine and Puncak Jalil with a total GDV of RM870m.
? Non-construction profits can anchor growth. The slow roll-out of public jobs locally at present will not derail Sunway’s overall growth prospects as: (1) Sunway has been able to secure private sector jobs including those from sister company SunCity; and (2) Rising non-construction profits, particularly, those from property development and trading/manufacturing, can still anchor group earnings growth.
? Maintain Outperform. Indicative fair value is RM2.35 based on 12x fully-diluted FY12/11 EPS of 19.5sen, line with our benchmark 1-year forward target PER for the construction sector of 10-16x.
SHARE
