KUALA LUMPUR (May 21): Sunway Construction Group Bhd (KL:SUNCON) retreated on Tuesday from its all-time high amid weaker-than-expected results and growing market concerns that its shares may have peaked after beating the consensus target price.
SunCon’s shares fell 3.6% or 12 sen to RM3.23, on course for their biggest decline in a single day since Nov 30, 2022. At noon trading break, the company is valued at RM4.16 billion after more than 3.1 million shares changed hands.
At least three research houses tracking SunCon have downgraded their ratings following the company’s first-quarter results, which largely met market expectations, and the majority of analysts now no longer recommend investors to buy the stock.
Phillip Capital downgraded SunCon to ‘sell’, cautioning that the stock "has run ahead of fundamental” and any good news from anticipated job wins have been “largely priced in” to the current price.
Shares of SunCon have surged 66% so far this year amid a broad rally in the construction sector fuelled by optimism of major infrastructure projects rollout by the government. A slew of high-margin jobs, particularly to build data centres, have also boosted shares of select companies, including SunCon.
SunCon now only has seven ‘buy’ calls out of 15 analysts covering the stock. Five analysts have ‘hold’ ratings while the remaining three, including Phillip Capital, are on ‘sell’ ratings, according to Bloomberg. The stock is also slightly higher than the consensus 12-month target price of RM3.22.
For Kenanga Investment Bank, which cut SunCon to ‘market perform’ from ‘outperform’, said the counter is “fairly valued” after a rally above its target price of RM3.16, which was based on 18 times its forward earnings, and in line with valuations for large-cap construction companies.
On Monday, SunCon reported that net profit for the first quarter ended March 31, 2024 (1QFY2024) came in higher at 6.4% year-on-year to RM32.40 million, which accounted for only 18% of the consensus full-year estimates. Revenue for the quarter rose 16% to RM604.80 million.
UOB Kay Hian also said that the current share price has already “priced in most positives at this juncture” even as earnings could be higher in the coming quarters on the back of accelerated progress billings as well as better profit margins.
“However, we do not rule out the possibility of a further rally in the share price amid the bullish market currently,” the research house said, flagging the possibility of the stock rallying as high as RM5.43 if valuation rises to its peak of 31 times the forward earnings from its five-year average of 17 times.