This article first appeared in The Edge Financial Daily on April 4, 2018 - April 10, 2018

Sunway Construction Group Bhd
(April 3, RM1.97)
Maintain buy with a lower target price of RM2.50: After closing 2017 on a high note — at an all-time high of RM2.51 — Sunway Construction Group Bhd shares have succumbed to profit-taking, being brought down to the RM2.05-level, a decline of 22%. We opine that the sell-off could be overdone, with no negative developments made known to us during a recent meeting with management. On the contrary, we believe it is a good opportunity for investors to accumulate at a more palatable level — 13.4 times rolling 12-month forward earnings, one standard deviation below its five-year mean.

The management of Sunway Construction guided for a financial year 2018 (FY18) order book replenishment target of RM1.5 billion to RM2 billion. So far, it has already secured RM456 million worth of new jobs from its parent, Sunway — which replenishes its internal job order book, of which projects are mostly at advanced stages.

Sunway Construction has tendered for several jobs within the buildings segment, specifically for the mid- to high-end office and mixed-property developments located within the Klang Valley, which could add RM600 million to RM900 million worth of new jobs.

The appointment of the High-Speed Rail (HSR) project delivery partner (PDP) is imminent, with Sunway Construction as one of the front runners, in our view. In our estimate, winning the PDP would boost the company’s fair value by 30 sen to RM2.80. Sunway Construction’s current outstanding order book stands at RM6.6 billion, equivalent to 3.4 times its FY17 construction revenue. It receives strong backing from its parent company, and maintains a high three-year average return on equity forecast of 33%. — RHB Investment Research, April 3