Sunway - Winner of KVMRT V4 package HOLD

- We reaffirm our HOLD recommendation on Sunway Bhd (Sunway) with our fair value unchanged at RM2.70/share, assigning a 25% discount to our sum-of-parts value of RM3.60/share.

- It was announced yesterday that Sunway has been awarded Package V4 of KV MRT job for the construction and completion of the viaduct gateway and other associated works between Section 17 in Petaling Jaya and the Semantan station.

- This is one of the four new tenders awarded for the construction of the Sg Buloh – Kajang (SBK) MRT line. The remaining packages are for Viaduct 1, Viaduct 7, and Depot 1, and together with Sunway’s Viaduct 4, the total contract value is worth a total RM3.22bil. 

- We are not surprised by this news given that it has the cost advantage over its competitors due to its in-house piling capabilities. As highlighted in our most recent report, piling work accounts for 20%-30% of the elevated package or circa RM200mil-RM300mil.

- The value of the job is worth RM1.17bil and is expected to yield a pre-tax margin of 7%.  Works should begin by 3Q/4QFY12 and will take about four years to complete. 

- Including this win, the group has already met its RM1.5bil order book renewal target with about 27% of the value consisting of in-house jobs, i.e. substructure works for Sunway Velocity. 

- Although Sunway is still in the mix for other MRT packages (viaduct and station), we believe WCT and IJM are favourites for the station works and having already won the V4 package, Sunway may find its chances limited for one of the remaining viaduct packages.

- Having said that, the group is currently sitting on a record construction order book of or close to RM4bil, taking into account YTD contract wins. But we are keeping our estimates at this juncture as we have assumed a RM1.5bil order book renewal this year.

- Sunway is currently trading at a steep discount of 34% to our SOP and cheap FY12F PE of 9x. While the stock looks attractive, there are no  near-term re-rating catalysts, given slowing property sales.  

Source: AmeSecurities