Sunway Holdings (OSK Research) buy; target price RM2.22

Another Win

Yesterday Sunway announced on Bursa that it has been awarded a RM209.6m contract from SunCity (NR). The job involves the earthworks, pilling and main building works for a  proposed mixed development by SunCity in Kuala Lumpur.

Project details. We understand that the project involves constructing shop offices, service apartments, basement car parks and recreational facilities for the Sunway Velocity mixed
development by sister company, SunCity. The contract duration is for 34 months (~3 years) and a letter to commence will be issued by 6 Nov.

Awards coming along nicely. Including this job win, Sunway has YTD bagged RM472.8m worth of jobs. We believe our RM1bn orderbook replenishment target for FY10 can easily be achieved. Management, on the other hand, is guiding for RM1.5bn in new jobs this year.

More from SunCity? Given Sunway is SunCity’s preferred contractor, we do not discount the possibility of more jobs from the latter. Although SunCity adopts an open tender system, Sunway has a historical success rate of ~50%. We understand that SunCity has RM700m-RM800m worth of development projects which include the Sunway Pyramid mall extension, a  corporate tower (preliminary works have been awarded to Sunway), Sunway College extension and some residential units.

Optimistic on contracts flow. We think Sunway has a participating chance in the LCCT building (RM750m-RM850m) and the Legoland Theme Park (RM700m). Putrajaya Holdings
SB also intends to call for RM1bn worth of tenders this year. Sunway has a strong working track record with the developer. Overseas, we see potential with Phase 2 of the Arzanah
Development (RM1bn) and some precast concrete supplies in Singapore.

Maintain BUY, RM2.22 TP. As Sunway’s contract wins YTD are within our replenishment target, we retain our estimates. Our TP is based on 12x partially diluted FY10 EPS. At 5x-7x on FY10-12 earnings, we see deep value in Sunway. Our FY10-11 estimates are 8%-12% above consensus and we expect consensus earnings momentum to be positive. Along with Mudajaya (BUY, TP: RM7.33), Sunway remains one of our top construction picks.

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