TA Securities cuts SunCon's FY20 earnings by 19.8pct

By Ayisy Yusof - August 20, 2020 @ 3:26pm

KUALA LUMPUR: TA Securities Holdings Bhd has made adjustments to Sunway Construction Group Bhd's (SunCon) revenue recognition and margin assumptions in light of the weaker-than-expected recent results.

The firm also raised its target for SunCon's financial year ending December 31, 2020 (FY20) orderbook replenishment assumption from RM1.6 billion to RM2.0 billion, in line with the company's target.

"Backed by RM1.47 billion of job wins year-to-date, SunCon's outstanding order book is estimated at RM6.2 billion (including RM747 million secured on August 18, 2020) as of end-June 2020, translating into 3.5 times of FY19 revenue," said analyst Ooi Beng Hooi in a research report.

Ooi said this could provide earnings visibility for SunCon over the next two to three years.

With strong outstanding order book and coupled with solid balance sheet, TA Securities raised SunCon's target price earning multiple from 12 times to 14 time, and upgrade the target price from RM1.19 to RM1.43.

However, the firm said, based on valuation ground, it had kept its "sell" call on the stock.

It cut SunCon's FY20 earnings forecast by 19.8 per cent but FY21 and FY22 earnings estimates were upgraded by 2.9 per cent and 15.4 per cent respectively."

SunCon's FY20 dividend forecast has also been reduced from 7.0 sen to 4.5 sen per share.

Ooi expects SunCon to accelerate construction activities to catch up the works progress.

The company's net profit plunged 93.4 per cent year-on-year (YoY) to RM2.19 million in the second quarter ended June 30, 2020 from RM33.19 million a year ago.

This was due to the impact of the Movement Control Order (MCO) to its construction and precast businesses.

Its Q2 revenue fell 68.2 per cent YoY to RM140.18 million from RM440.18 million recorded previously, hampered by the inability of test labs to cope with the amount of testing compulsory on all its foreign workers before commencing construction.

For the first half, SunCon's net profit plummeted 71.12 per cent to RM18.54 million from RM64.20 million, while revenue decreased 42.51 per cent to RM506.01 million from RM880.21 million previously.