Sunway Holdings Bhd
(Feb 8, RM1.33)
Buy at RM1.34, target price at RM1.95: Sunway remains the cheapest construction stock in our universe (ex-TRC), trading at fair disclosure calendar year ending Dec 31, 2010 (CY10) price earnings (PE) of nine times.

We see strong earnings delivery (two-year compound annual growth rate of 45%) and improving contract flows to be key re-rating catalysts. Earnings momentum will continue in the financial year ending Dec 31, 2010 (FY10) with expected record core net profit of RM123 million.

Sunway remains upbeat on new orders in FY10, guiding RM1 billion after achieving about RM500 million in FY09. The current RM2.5 billion order book provides two years’ earnings visibility.

Projects in the pipeline include the RM1 billion low-cost carrier terminal (LCCT) building, RM500 million Mengkuang dam, RM1 billion potential new works from Sunway City’s related jobs which would accelerate post listing of its real estate investment trust (REIT) and foreign jobs in India and the Middle East.

For its potential foreign contract wins, similar to IJM Corporation Bhd, Sunway is hopeful of clinching more road projects in India with a more aggressive minister at the helm.

It currently has some RM181 million works outstanding in India (UP4 and Cochin highways). As for new jobs in the Middle East, we understand there is a hospital-related project which could amount to RM300 million to RM500 million.

The LCCT is sizeable but extremely competitive with 17 contractors prequalified. Sunway aims to leverage on its piling and mechanical and engineering expertise for this.

Property unbilled sales stand at RM713 million coming predominantly from its two Singapore projects which are 85% to 95% sold. Its new S$420 million (RM1.02 billion) (S$900 per sq ft) Singapore private project in Jalan Senang (launch in mid-CY10) should do well given improving property market where private residential prices rose 7.4% in the fourth quarter ended Dec 31, 2009.

The recent land acquisition in Templer Park boosted its landbank to over 400 acres (161.87ha). This RM500 million project will be launched in 2011 and should also do well being adjacent to the country club.

The wildcard remains a surge in orders from its spun pile business in China once construction of the US$5 billion to US$6 billion (RM17.25 billion to RM20.7 billion) Hong Kong-Zhuhai-Macau bridge takes off. — HwangDBS Vickers Research, Feb 8


This article appeared in The Edge Financial Daily, February 9, 2010.