Stock picks for 2016: Sunway Construction Group

by **Cals** Mon 04 Jan 2016, 23:26

Stock picks for 2016: Sunway Construction Group

By Tan Siew Mung / The Edge Financial Daily | January 4, 2016 : 9:56 AM MYT

This article first appeared in The Edge Financial Daily, on January 4, 2016.

Sunway Construction Group Bhd

[size=16]Sunway Construction Group Bhd (SunCon) ([You must be registered and logged in to see this image.] Valuation: N/A, Fundamental: N/A) is seen as the best proxy for growth in the construction sector this year underpinned by a strong infrastructure pipeline.

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UOB Asset Management (Malaysia) Bhd ([You must be registered and logged in to see this image.] Valuation: 1.80, Fundamental: 1.00) executive director and chief executive officer Lim Suet Ling likes the stock due to its strong order book visibility with high replenishment prospects.

“SunCon is a pure contractor with no property development exposure,” Lim told The Edge Financial Daily.

In a report dated Nov 25, TA Securities noted that as at Sept 15, SunCon had an outstanding order book of RM4.3 billion, which translates into 2.3 times its financial year 2014 (FY14) revenue, and this could provide earning visibility for the next two years or until 2018.

The company is also seen as a strong contender for upcoming mega infrastructure projects such as the Light Rail Transit Line 3, the Klang Valley Mass Rapid Transit Line 2 and the Bus Rapid Transit (BRT), it added.

“The company has a very sizeable order book, and it has its parent company (Sunway Holdings Bhd ([You must be registered and logged in to see this image.] Valuation: 2.40, Fundamental: 1.10)) to support its business,” TA Securities head of research Kaladher Govindan said. As of Dec 28, Sunway Holdings had a 54.42% stake in SunCon.

He said SunCon is also a fully integrated construction player and thus, it is able to offer a full package of construction services.

Although investors may turn defensive under the current challenging economic conditions, Kaladher said he still sees opportunities in undervalued companies with good fundamentals and long-term growth such as SunCon.

For its cumulative nine-month period ended Sept 30, 2015, SunCon reported a net profit of RM97.82 million on revenue of RM1.45 billion, mainly due to higher profit recognition from the civil/infrastructure projects. No comparative figures were available for the preceding year’s corresponding period as SunCon was only listed on the Main Market of Bursa Malaysia on July 28 .

According to a fund manager who declined to be named, SunCon’s price-to-earnings ratio of 13 times would deem it decent to investors, and its earnings visibility is considered high compared with its peers.

“In addition, SunCon’s business is domestic-driven and thus, it is not expected to be affected significantly by external shocks,” he added.

Since it started trading at RM1.20, SunCon shares had gained 16.7%. The stock closed three sen or 2.19% higher at RM1.40 last Thursday, bringing its market capitalisation to RM1.81 billion.
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