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Sunway Construction Group Bhd (SunCon) is poised for higher earnings following its latest contract win, which gives its order book a boost.
The construction group had announced that its 60:40 joint venture with Power Engineering Consulting Stock Company 2 has signed an interim agreement with Toyo Ventures Holdings Bhd to provide engineering, procurement and construction (EPC) works worth US$2.2bil (RM10bil) for a 2,120MW coal-fired power plant in Vietnam.
It said the duration of the contract woukd be 57 months upon finalising the terms in a definitive agreement within the next six months.We understand from SunCon that the project would be a pure EPC job with no required financing from its end, and the commencement of the contract hinges upon the project owners obtaining financial close from its syndicated lenders.
Toyo Ventures has secured the power plant concession in end-2020 but has yet to achieve financial close.
We believe that SunCons role as an established contractor in the concession would help expedite the financial close, said the research house said in its stock update.
The research house said overall, the contract would lift the year-to-date replenishment to RM6.9bil, surpassing Kenanga Research and the companys targets of RM1.5bil and RM2bil respectively.
We are positive about the sheer scale of the project, which lifts SunCons current outstanding order book of RM4bil to a record high of RM10bil.
This is compared with the previous peak was RM6.6bil in 2017, it added.
Following the contract win, Kenanga Research had raised its FY23 forecast earnings for SunCon by 19% after factoring in the higher forecast financial year 2022 replenishment of RM6.9bil.
It maintained an outperform call on the stock with a higher target price of RM1.93.
We like SunCon for its strong replenishment pipeline from its parent Sunway Bhd and dominant position in the local construction space.
It has extensive capabilities and track record in building, infrastructure, solar, mechanical, electrical and plumbing works as well as a strong balance sheet that allows it to participate in deferred payment model projects, Kenanga Research pointed out.
However, the risks to its call include sustained weak flows of construction jobs from public and private sectors, project cost overrun and liabilities arising from liquidated ascertained damages and rising cost of building materials. |
