This article first appeared in The Edge Malaysia Weekly on November 7, 2022 - November 13, 2022
Sunway Construction Group Bhd (SunCon) demonstrated resilience as the construction sector went through tough times because of the pandemic and emerged stronger from the experience. The company clinched The Edge Billion Ringgit Club (BRC) award for highest return on equity (ROE) over three years for the construction sector for the fourth-straight year in 2022.
As with other construction companies, SunCon’s operations were affected by the pandemic over the past two years, causing ROE to fall in 2020. Thanks to the management’s prompt response in mitigating these adversities, however, the financial metric started to rebound in the following year even though Malaysia was still in various stages of lockdown.
The group’s ROE was 21.32% in 2019, before slipping to 11.55% in 2020 and rebounding to 16.85% last year. As a result, the adjusted weighted ROE over three years was 16.16%, based on the awards methodology.
SunCon’s chairman Datuk Ir Goh Chye Koon says the group paid particular attention in 2021 to strengthening its Building Information Modelling (BIM) capabilities to improve productivity, reduce costs and speed up project delivery.
“For instance, as part of our digital transformation, we rolled out the SunCon Project Management Dashboard, an in-house developed platform to enable our project teams to be able to visualise [remotely the] 3D BIM models … that helped our teams to collaborate more effectively during the pandemic,” he says in the group’s latest annual report.
Although earnings were under pressure in 2020, following the first wave of the Covid-19 outbreak, it quickly recovered, with 55% net profit growth to RM112.59 million in 2021, on the back of an 11% growth in revenue to RM1.73 billion.
“The pandemic has taught us to be agile and changed the way we operate to ensure productivity even while observing stringent standard operating procedures and fewer workers on site,” says Goh.
According to him, SunCon’s performance in 2021 was also supported by a strong pipeline of projects from parent company Sunway Bhd, which owns a 55% stake in the construction group.
The group remained committed to its dividend policy of distributing at least 35% of net profit despite a challenging 2021, declaring 5.25 sen in dividend per share, up from four sen in 2020 and seven sen from 2017 to 2019.
SunCon’s recovery momentum seems to be continuing this year, with net profit more than doubling to RM66.82 million in the first half of 2022 (1HFY2022) from RM28.56 million in the previous corresponding period, while revenue grew 42% to RM1.18 billion from RM830.47 million. The group declared an interim dividend of three sen per share.
SunCon sees an improvement in the outlook of the construction sector as several mega infrastructure projects such as the Mass Rapid Transit Line 3 (MRT3) have started their tender process.
“Apart from the mega infrastructure projects, the increased demand in e-commerce, cloud computing and microchips has given rise to the need for more semiconductor factories, warehouses and data centres,” the group said in its latest quarterly report.
SunCon’s outstanding order book stood at RM4.2 billion as at 2HFY2022, down from RM4.8 billion at end-2021.
Although the group’s latest outstanding order book is deemed “decent”, Hong Leong Investment Bank notes in its Aug 24 research report that SunCon’s contract replenishment has lagged expectations, with only RM536 million replenished in 1HFY2022 versus management’s target of RM2 billion for FY2022 and the investment bank’s forecast of RM1.6 billion.
“SunCon is in the midst of tendering for sizeable factories and data centre jobs, which are worth RM1 billion to RM1.5 billion individually. Elsewhere, SunCon has about RM500 million worth of in-house jobs that could also be converted into awards this year.
“While we believe the volatile nature of cost movement through the year has negatively impacted award conversion, we believe that SunCon could also be preserving balance sheet space to bid for the MRT3 turnkey package. If unsuccessful, the company would still be a strong subcontractor candidate,” says the investment bank.
Hong Leong has kept its “buy” recommendation on SunCon, with a higher target price of RM1.90 from RM1.84, as it likes the group’s healthy balance sheet with net cash position of 30 sen per share, track record and strong support from its parent company.
According to Bloomberg data at the time of writing, SunCon had nine “buy” calls, four “hold” ratings and one “sell” call, with a consensus target price of RM1.82.
As the post-pandemic recovery momentum continues, SunCon’s shareholders would be keen to witness further success from the group after four decades of construction excellence.
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