8 Things You Must Know About Sunway Construction Group Bhd

Sunway Construction Group Bhd (SCG) has its roots traced back to 1981. At that time, it started its operations as Sungei Way Quarry & Construction Sdn Bhd with its first project being a carpark and road resurfacing works in Bukit Damansara worth RM 21,000. Subsequently, in the 1980s, it began to grew as it developed Bandar Sunway, an award-winning township that was originally a 800-acre tin mine wasteland located some 20km away from Kuala Lumpur.

In 1997, the construction company was first listed on Bursa Malaysia. 7 years later, it was privatized and delisted from the stock exchange. In 2010, Tan Sri Dato’ Seri Jeffrey Cheah has established Sunway Bhd by merging his two key businesses, namely property and construction. The enlarged entity was listed on Bursa Malaysia in 2013. A few years later, Sunway Bhd decided to relist its construction company. This has led to the successful listing of SCG on Bursa Malaysia on 28 July 2015.

Today, SCG is the largest listed pure-play construction company in Malaysia. As I write, it is worth RM 2.97 billion in market capitalization. In this article, I’ll list down 8 things that you need to know about SCG before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: SUNCON / KLSE: 5263
Market Capitalization: RM 2.97 Billion (5 May 2018)

Share Price: RM 2.30 (5 May 2018)

Industry: Construction

Syariah Compliant: No

#2: The Business

SCG derives income from five core business activities. They are:

1. Building Construction Services
   SCG provides design and construction services for a diverse range of residential, commercial, and specialty buildings. To name a few, it has completed projects which are national landmarks which includes the Kuala Lumpur Convention Centre (KLCC), Legoland, Traders Hotel Kuala Lumpur and Sunway Pyramid Shopping Centre. This segment has reported to make RM 1.29 billion in revenue in 2017.  
2. Civil / Infrastructure Construction Services
   It is involved in building roads, highways, bridges, rail transportation, airports and runways. SCG has completed key projects which include the Kajang SILK highway and the South Klang Valley Expressway. It is now participating in both the KVMRT and LRT3 mega projects in the Klang Valley. This division has made a total of RM 487.9 million in revenue in 2017.  
3. Mechanical, Electrical & Plumbing Services
   The range of services provided includes lift & escalator services, fire systems, gas piping systems, building monitoring & control systems, high-tension low-voltage electrical systems, water plumbing, sanitary plumbing and irrigation systems, and biomass & chilled water plants. Its key projects include the Gas District Cooling Plant in Putrajaya & the Bio-XCell Biotechnology Park in Nusajaya. This segment made a total of RM 466.0 million in revenue in 2017.  
4. Foundation & Geotechnical Engineering Services
   This segment provides designs & builds of earth retaining systems & piling solutions. It has made RM 202.8 million in sales in 2017, thus, is a smaller sales contributor to SCG.  
5. Precast Concrete Products
   SCG operates two precast plants that are located in Senai, Johor and Tampines, Singapore. This segment is currently the smallest revenue contributor to SCG as it reported to make RM 144.9 million in sales in 2017.

#3: Financials

SCG has reported continuous growth in both sales and profits over the past 6 years. Revenue increased from RM 1.45 billion in 2012 to RM 2.08 billion in 2017.  With stable margins, shareholders’ earnings have grown from RM 54.8 million in 2012 to RM 137.4 million in 2017. Since its listing in 2015, SCG has generated a 3-Year Return on Equity (ROE) average of 26.0% a year. It means that SCG made, on average, RM 26 in annual earnings from every RM 100 in shareholders’ equity from 2015 to 2017.

Source: Annual Reports of SCG

#4: Balance Sheet Strength

As at 31 December 2017, SCG has zero long-term borrowings. Therefore, its gearing ratio works out to be zero. It has increased its cash reserves from RM 94.0 million in 2012 to RM 486.8 million in 2017.

Source: Annual Reports of SCG

#5: Future Prospects

Here are the key highlights of SCG moving forward:

Outstanding Order Book

As at 31 December 2017, SCG has recorded outstanding order book of RM 6.14 billion. This is inclusive of RM 3.96 billion of new order books secured by SCG in 2017. They provide SCG with income visibility over the next 2-3 years. These projects and their outstanding order book amount include:

1. MRT V201 + S201 (Sungai Buloh – Persiaran Dagang): RM 871 million 
2. LRT 3: Package GS07-08: RM 2,178 million  
3. Putrajaya Parcel F: RM 707 million  
4. PPA1M Kota Bharu: RM 540 million 
5. Sunway Serene: RM 426 million 
6. Sunway Medical Centre 4 (2 towers): RM 383 million

Combined, the six projects have RM 5.105 billion in outstanding order book, accounting for 83.2% of total outstanding order book as at 31 December 2017.

New Order Books

SCG targets to achieve RM 2 billion in order book replenishments annually. As at 28 February 2018, SCG has bagged in two new order books worth RM 456 million or 22.8% of targeted amount. The two projects are:

1. Sunway Carnival 2 Extension: RM 189 million  
2. SunGeo Lake 44-storey residential tower at Sunway South Quay: RM 223 million

Major Tender Submitted

SCG has submitted its tender for the PDP for KL-SG HSR project under IJM Construction Sdn Bhd – Jalinan Rejang Sdn Bhd – Maltimur Resources Sdn Bhd – Sunway Construction Sdn Bhd Consortium in February 2018.

With the new government in place, the major project like the High-Speed Rail might be review and that could put on some uncertainty on the short-term prospect of Sunway Construction.

#6: Valuation

As I write, SCG is trading at RM 2.30 a share.

In 2017, SCG has reported earnings per share (EPS) of 10.7 sen. Therefore, its current P/E Ratio works out to be 21.50. It has also reported to have RM 0.43 in net assets a share. Thus, its current P/B Ratio works out to be 5.37.

In 2017, SCG has paid out RM 0.07 in dividends per share (DPS). If it is able to maintain its DPS at RM 0.07 for 2018, its expected dividend yields is 3.0%.

#7: Investors Relation

For further enquiries or to request for additional investment information on SCG’s Investors Relation matters, you may contact:
Ms. Ng Bee Lien

Chief Financial Officer

Tel: +603 5639 9645

Ms. Elaine Lai

Accountant

Tel: +603 5639 9793

Website: http://www.sunwayconstruction.com.my/investor-relations/

#8: Major Shareholders

As at 20 March 2018, the substantial shareholders of SCG and their respective shareholdings are as followed:

– Tan Sri Dato’ Seri Jeffrey Cheah Fook Ling: 65.11%

– Employees Provident Fund Board: 6.06%

– Amanah Saham Bumiputera 2: 2.23%

– Citibank New York (Norges Bank 14): 1.28%

– Kenanga Growth Fund: 0.88%

Note:

Tan Sri Dato’ Seri Jeffrey Cheah is the ultimate major shareholder of SCG with his interests in Active Equity Sdn Bhd, Sungei Way Corporation Sdn Bhd, Sunway Bhd, Sunway Holdings Sdn Bhd, and his children.

Evan Cheah, his son, is appointed as a non-executive director of SCG.

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