Sunway Construction Group Bhd

Initiate with buy with a target price (TP) of RM1.38: Sunway Construction Group Bhd (SCGB) is the largest pure-play integrated construction services provider offering end-to-end total construction solutions.

We expect SCGB to clinch contracts of the upcoming major infrastructure projects, such as Mass Rapid Transit Line 2, Light Rail Transit 3 and Bus Rapid Transit, given its successful track record.

Order book prospects are good with support from Sunway Bhd, government infrastructure spending and residential housing development in Singapore.

Past and present projects undertaken by SCGB span residential, commercial, industrial, purpose-built building and infrastructure construction.

Diversification of its project portfolio allows SCGB to leverage its resources, spread the risks from demand instability due to softening of the property market, and capture new opportunities.

SCGB is well-positioned to secure more contracts from major government infrastructure spending. Having gathered design-and-build experience in all three urban transit system construction, SCGB is poised to sustain its strong order book, especially for financial year 2016 (FY16) and FY17, once the awards are given out.

SCGB is quite attractively priced at RM1.20, offering ample potential upsides in FY17, when the contribution from some major projects starts to kick in. We initiate coverage on SCGB with a “buy” recommendation and a TP of RM1.38, with a 15% potential price upside.

Inclusive of the 3% dividend yield, the total expected return is 18%. Our TP is derived based on the average FY15/FY16 earnings per share of 9.9 sen. — MIDF Research, July 7

This article first appeared in The Edge Financial Daily, on July 8, 2015.

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