Sunway secures RM28m construction contract

Sunway Bhd (Dec 27, RM2.50)
Maintain buy at RM2.46 with target price of RM2.79: Sunway announced that its wholly-owned subsidiary, Sunway Geotechnics (M) Sdn Bhd had on Dec 22, 2011 accepted a letter of award from Hap Seng Land Development Sdn Bhd for the construction and completion of earthworks, piling, basement and ground floor reinforced concrete structures for one block of 43-storey serviced apartments at Jalan Tun Razak, Kuala Lumpur. The contract value is RM27.6 million and the project is targeted to be completed by Dec 12, 2012, with a construction period of 12 months.

We make no changes to our FY11 to FY13 net earnings forecasts as the contract value is small (compared with Sunway's RM2.9 billion construction order book) and we have imputed over RM1 billion of yearly new contract wins for FY11/FY12. Maintain "buy" on Sunway with an unchanged target price of RM2.79, based on a 30% discount to realisable net asset value. Notwithstanding our cautious stance on the domestic medium- to high-end property market in view of the rising global economic uncertainties and potential tightening of bank mortgages, we continue to like Sunway for its: (i) integrated real estate business model; (ii) strategic landbank; (iii) extensive experience in the construction sector with a proven track record; and (iv) established international footprint in Singapore and China (property development) and Middle East (construction). Besides, we believe Sunway's short-to medium-term earnings will be cushioned from any unexpected short-term market downturn given their high property unbilled sales of RM2 billion, construction order book of RM2.9 billion and recurring income from the Sunway REIT and its theme park operations. — Affin IB Research, Dec 27