Sunway Construction Group Bhd (Nov 21, RM2.40)

Maintain buy with a target price of RM2.67: Sunway Construction Group Bhd’s (SunCon) earnings for the first nine months of financial year 2017 (9MFY17) of RM106 million (+16% year-on-year [y-o-y]) were slightly below expectations, accounting for 65.1% and 70.7% of our and consensus full-year forecasts respectively.

SunCon’s 9MFY17 revenue of RM1.3 billion (+7% y-o-y) came in strong as a result of better-than-expected construction revenue of RM1.21 billion (+16.9% y-o-y), influenced by improvement in the higher progress billings rate.

Moving forward, we reckon that clinching the bus rapid transit (BRT) project from Klang to Kuala Lumpur would be a game changer for SunCon as this provides earnings upside to our assumptions.

Notably, its return on asset is 8.2% above the weighted average cost of capital of 6.7%, indicating the company is pushing hard to improve its asset efficiency and reduce its liabilities. — MIDF Research, Nov 21

This article first appeared in The Edge Financial Daily, on Nov 22, 2017.

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