(Jan 4, RM2.31)
Maintain buy at RM2.24 with target price RM2.60: Sunway Holdings announced on Jan 3 that its wholly owned subsidiary, Sunway Construction Sdn Bhd, had on Dec 30, 2010, accepted letters of award totalling RM218.8 million. The group was engaged for the proposed design, construction, completion, fitting, commissioning, and maintaining the main infrastructure works and satellite works for Universiti Teknologi Mara campus expansion for Package A and Package B. The project is expected to be completed by January 2013. The group also secured another contract for the design, construction and completion of the proposed link bridge Phase 2 from Impiana KLCC to Raja Chulan (Pavilion KL) by KLCC Holdings Sdn Bhd. This project is scheduled to be completed in 43 weeks by Oct 30, 2011.
With the latest contract wins, the group’s outstanding construction order book stands at RM2.5 billion, about equally balanced between local and overseas jobs. Total contracts secured in 2010 amounted to RM906 million, slightly below our RM1 billion order book replenishment assumption. However, as one of the local construction players with a strong track record, we believe the group is poised to benefit from the impending roll-out of more jobs in 2011, as civil works for the MRT project will only be opened to local contractors apart from the tunnelling portion. Its total construction tender book is about RM16 billion, including highway projects in India and Phase 2 of the Arzanah development in Abu Dhabi. We are factoring in RM1.5 billion in order book replenishment for FY11.
We lower our FY11/FY12 earnings estimates marginally to adjust for the lower than anticipated contract replenishment for 2010. Sunway is our top “buy” for the construction sector. This is premised on: (i) strong earnings growth of 17.8% in FY11; (ii) undemanding forward CY11 price-earnings ratio of 7.5 times; (iii) more landbank acquisition in the pipeline; and (iv) strength in securing overseas construction contracts. Although our realisable net asset value estimate stands at RM3.61, our target price reflects the offer price of RM2.60 in the proposed merger of the group with sister company Sunway City Bhd. — ECM Libra Investment Research, Jan 4
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