A Full Analysis on Sunway Construction Group Bhd

Sunway Construction Group Bhd (KLSE: SUNCON) is the biggest pure-play construction firm listed on Bursa Malaysia. It offers building, infrastructure, civil, mechanical, electrical, plumbing, foundation, and geotechnical engineering services to both in-house clients within the Sunway Group and external customers in Malaysia. 

As of 24 October 2019, SunCon is worth RM 2.51 billion in market capitalisation and is amongst a constituent of the FTSE4GOOD Bursa Malaysia Index. Here, I’ll like to cover on its recent financial results, future plans, and valuation ratios. As such, the following is a list of 10 major things on SunCon that you need to know before investing into it.

• Profitability
  SunCon has attained a 4.7% and 6.4% in revenue and earnings over the last four years. Revenues had increased from RM 1.88 billion in 2014 to RM 2.26 billion in 2018. Shareholders’ earnings had increased from RM 112.8 million in 2014 to RM 144.7 million in 2018. SunCon’s results had been largely contributed by in-house projects and key customers which is listed as follows:
  

No.	Key Customers	Revenues 2018(RM Million)	Revenue 2018 (%)
1	Putrajaya Bina Sdn Bhd	536.3	23.8%
2	Sunway Group of Companies	465.0	20.6%
3	MMC Gamuda	295.9	13.1%
4	Prasarana Negara Bhd	190.0	8.4%
5	Cititower Sdn Bhd	151.3	6.7%
6	Other Construction Revenues	495.7	22.0%
7	Revenues from Precast Sales	133.7	5.9%
SunCon’s Total Revenues	2,256.8	100.0%

Source: SunCon’s Annual Reports

• Return on Equity (ROE)
  SunCon has 5-Year ROE Average of 26.46% per annum. This means, the company has made RM 26.46 in annual earnings from every RM 100.00 it has in shareholders’ equity from 2014 to 2018.
  
  
  
• Cash Flow Management
  From 2014 to 2018, SunCon has generated RM 691.7 million in positive cash flows from operations and RM 52.1 million in interest income. Out of which, SunCon has spent on the following:
  
  – RM 181.7 million in net capital expenditures (CAPEX).
  – RM 219.0 million in net long-term borrowings.
  – RM 303.7 million in dividends to its existing shareholders.
  
  Overall, SunCon’s cash reserves had increased from RM 277.6 million in 2014 to RM 484.7 million in 2018. It shows that SunCon was efficient in managing its cash flows, enabling it par down its debt and to reward its shareholders with consistent dividend payments during the period.

• Balance Sheet Strength
  For the past 5 years, SunCon has maintained a net cash position, where its cash & placement funds exceed its total bank borrowings. As such, it earned net finance income during the period. In Q2 2019, it has around RM 410 million in net cash and thus, having no gearing ratio.
  
• Management
  As of 20 March 2019, SunCon’s 5 largest shareholders are as follows:

No.	Key Shareholders	Shareholdings (%)
1	Sunway Holdings Sdn Bhd (SHSB)	54.44%
2	Sungei Way Corporation Sdn Bhd (SWC)	10.06%
3	Employees Provident Fund Board	8.38%
4	Amanah Saham Bumiputera	4.26%
5	Amanah Saham Bumiputera 2	2.23%

Notes:
Tan Sri Dato’ Seri Dr. Jeffrey Cheah Fook Ling (Jeffrey Cheah) is now the largest indirect shareholder of SunCon with his interest in both SHSB & SWC. Evan Cheah, his son, is a non-executive director of the company.

Outstanding Order Book
As of 30 June 2019, SunCon has secured RM 1.54 billion in construction order book, thus, lifting its outstanding order book to RM 5.78 billion in present times.

Here are a list of major contracts secured in 2019:

No.	Projects	Completion Period	Contract Sum(RM Million)	Outstanding Order Book(RM Million)
1	TNB HQ Campus (Phase 2)	Q2 2021	781	756
2	PETRONAS Leadership Centre, Bangi	Q2 2021	310	310
3	Oxley Tower	Q2 2022	68	68
4	Piling Works – Y19	n/a	99	88
5	Big Box Hotel	Q3 2020	100	93
6	Parcel CP2	Q3 2021	119	119
7	Other New Orders (2019)	n/a	60	60
SunCon’s Total Contracts Secured in FY 2019	1,537	1,494

Source: SunCon’s Investors’ Presentation Q2 2019

Out of the RM 5.78 billion, its major outstanding order book is listed as follows:

No.	Projects	Completion Period	Contract Sum(RM Million)	Outstanding Order Book(RM Million)
1	LRT3: Package GS07-08	Q2 2021	2,178	1,882
2	TNB HQ Campus (Phase 2)	Q2 2021	781	756
3	Sunway Medical Centre 4	Q2 2021	512	417
4	Sunway Velocity 2	Q4 2021	352	328
5	PETRONAS Leadership Centre, Bangi	Q2 2021	310	310
6	Other Projects	n/a	5,999	2,090
SunCon’s Total Outstanding Order Book	10,132	5,783

Source: SunCon’s Investors’ Presentation Q2 2019

• Latest 12-Month Financial Results
  For the last 12 months, SunCon has made RM 2.06 billion in revenue & made RM 137.2 million in earnings or RM 0.1062 in earnings per share (EPS).

Period	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Total
Revenues	557,317	626,015	440,035	440,175	2,063,542
Earnings	36,413	36,561	31,018	33,185	137,177
EPS (Sen)	2.82	2.83	2.40	2.57	10.62

Source: SunCon’s Quarterly Reports

• P/E Ratio
  As of 25 October 2019, SunCon is trading at RM 1.95 per share. Hence, based on its recent 12-month EPS of 10.62 sen, its current P/E Ratio is 18.36, which is above its 4-year average of 16.88.

• P/B Ratio
  As of 30 June 2019, SunCon has net assets of RM 0.47 a share. Thus, its current P/B Ratio is 4.15, slightly below its 4-year average of 4.31.

• Dividend Yields
  In 2018, SunCon has paid out 7.00 sen in dividends per share (DPS). It is an increase from 4.00 sen in DPS from 2015. Based on its latest DPS, its current dividend yield is 3.59% per year, higher than its 4-year average of 3.46% per annum.

Source: SunCon’s Annual Reports

VIA’s Verdict 

Overall, SunCon has delivered stable financial results, despite being in a cyclical industry, since its IPO listing. This enables SunCon to reward its investors with a string of dividend payments. In Q2 2019, it has outstanding order book worth a total of RM 5.78 billion where bulk of it consists of LRT3 project (RM 1.9 billion) and in-house projects with the Sunway Group (RM 1.9 billion) and as well as its newly secured TNB HQ and PETRONAS Learning Centre (RM 1.1 billion). 

Based on valuation ratios, it offers above average P/E Ratio. But, its P/B Ratio is below average. It offers 3.59% in dividend yields presently.