This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023
Without a doubt, Sunway Construction Group Bhd is among the most respected construction outfits in Malaysia, revered by its peers and a favourite among the analysts’ fraternity that covers stocks from the sector.
Out of the 15 analysts who cover Sunway Construction, or SunCon as it is known, 10 had “buy” or positive calls, and four had “hold” calls at the time of writing.
Among the key strengths of SunCon is its large order book of RM6.4 billion and its strong parentage: Sunway Bhd, a diversified giant with interests in property development, leisure, hospitality, healthcare, building materials and trading. The Sunway group also has a presence in numerous countries, including China, the UK, Vietnam, Australia, Cambodia, India, Thailand and the Philippines.
Year to date, SunCon’s share price is up more than a third and was testing the RM2 band on Oct 12 when it closed at RM1.97 to give the company a market capitalisation of RM2.54 billion. That was after hitting an intraday high of RM1.99 — a level it last saw in mid-2018. The stock gave up some gains to close at RM1.88 on Oct 23 before regaining some ground to close at RM1.90 on Oct 27, still up over 25% year to date.
SunCon has been doing well, having secured RM2.2 billion worth of contracts in the first nine months of this year.
Last month alone, SunCon was awarded two jobs collectively valued at RM785 million — one from Daiso Malaysia Group and another from K2 Strategic Infrastructure Malaysia — which nudged its order-book replenishment to RM2.2 billion, above analysts’ target of RM2 billion for the year. More jobs could well come its way by year end, including the Johor Bahru-Singapore Rapid Transit System (RTS), the Mass Rapid Transit 3 and power projects in Vietnam. The RTS, in particular, is likely to be awarded soon.
Considering how well the company has been performing, it is no surprise that SunCon has bagged The Edge Billion Ringgit Club (BRC) award for highest return on equity (ROE) over three years for the construction sector — for the fifth straight year.
During the evaluation period for this year’s BRC award between FY2020 and FY2022, SunCon’s three-year adjusted weighted ROE averaged 16.8% per year. Broken down, it garnered 11.6% in FY2020, managed 16.9% in FY2021 and chalked up 18.8% in FY2022.
SunCon’s risk-weighted three-year profit after tax compound annual growth rate during the same three-year award evaluation period, however, was only 1.2% — not enough to beat all its peers. SunCon’s net profit of RM129.3 million for FY2019 had plunged to RM72.8 million during the Covid-19-hit FY2020 but recovered to RM112.6 million for FY2021 and further increased to RM135.2 million for FY2022.
SunCon chalked up a net profit of RM60.83 million for its six months ended June 2023, on the back of RM1.13 billion in revenue. This was lower than the RM66.82 million in net profit and RM1.18 billion in revenue booked in the previous corresponding period. Its earnings per share for the first half of FY2023 was pegged at 4.72 sen per share, in contrast to 5.19 sen for the first six months of FY2022.
At end-June 2023, SunCon had cash and bank balances of RM343.68 million, while on the other side of the balance sheet, it had long-term debt commitments of RM444.51 million and short-term borrowings of RM177.11 million. SunCon also retained profits of RM544.44 million.
On its prospects, SunCon says it is “cautiously optimistic of registering positive growth for the financial year ending 2023” based on its existing order book.
It is noteworthy that in 2014, BRC presented Sunway Group founder, patriarch and executive chairman Tan Sri Jeffrey Cheah Fook Ling with the Value Creator, Outstanding CEO Malaysia award. In October this year, Jeffrey was named an honorary Knight Commander of the Most Excellent Order of the British Empire by Britain’s King Charles III in recognition of the instrumental role he has played in forging high-level links with a number of UK institutions and his immense contribution towards the bilateral relationship between the UK and Malaysia.
Jeffrey and his family, via publicly traded Sunway and privately held Sungei Way Corp Sdn Bhd, have a 64.65% stake in SunCon. Another substantial shareholder in SunCon is the Employees Provident Fund with 7.52% equity interest.
While Jeffrey is not on SunCon’s board, his son Evan Cheah Yean Shin is a non-executive director. Jeffrey, however, is the executive chairman of Sunway, the parent company of SunCon.
In Sunway’s annual report for FY2022, Jeffrey said in his chairman’s statement, “After more than two years of difficult times that had a significant negative impact on people’s lives and livelihoods, a return to some semblance of normalcy was greatly appreciated … I am delighted to inform you that Sunway has emerged from the pandemic better and stronger as a group.”
Judging by SunCon’s continued success, this is as clear as day.
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