Tuesday, July 28, 2015

How much Sunway Construction worth today compare to 2004?

One of my client ask me about today's new listing, Suncon (5263). So, I try to find the details about this company, since I also strike some shares for the IPO. Surprisingly, not many broker cover this stock, so, I need to do my own research, and I think it's good for me to share it here with all.

I started from the Prospectus, it's logo looks like this:

From the history, Suncon was listed on KLSE before on June 1997 and delisted on Dec 2004. After 11 years, they come back to list again. Of course, they will tell you Suncon  now have more than 30 years experience in construction business, with good track record, among the well known projects are, Kuala Lumpur Convention Centre, SILK Highway, Sunway Pyramid Shopping Mall, Legoland Theme Park and bla bla bla...

I am not interested to know all these, what I need to find out is, if the history going to give any indication for today's stock price. One info I found, at the year 2004 before it was delisted, the price rage in terms of PE (Price Earning Ratio) from 8.2x to 17x. Today, the quarterly EPS is 2.66 cents, if it were to repeat the same result for the next 3 quarter, then the whole year's EPS will be 10.64 cents.

Let's take 2004's PE range and apply today, it will be RM0.87 to RM1.80, meaning if history repeat, one would have to expect the price fall in this range. Base on formula of 30% from the lowest point, the safety entry points for today's SunCon is RM1.16 and below. My opinion is, if you satisfy with 3% dividend yield, then it's one of investment option to slowly collect SunCon if it below RM1.16 and dispose it slowly once above RM1.40. (most of broker give target price of RM1.40) However, if you see any two quarter's profit continue to go down trend, then the whole story change!

Base on market cap, SunCon currently place at number 4th position (market cap RM1.5B), behind IJM (RM12.1B), Gamuda (RM11.3B) and WCT (RM1.6B). The Prospectus seem a bit mislead by saying SunCon is the largest pure play construction company in Malaysia by revenue, but again, for investors, we need to find out who have the highest profit after tax margin. Again, SunCon PAT margin was not great, it's 6.6% only, compare to IJM (13.81%), Gamuda (13.94%) and WCT (11.81%).

One of selling point, SunCon's orderbook stood at RM2.8b as of March base on RM11b bidding project. The company target to increase their tender book up to RM20b, if this able to achieve, then for profit to increase another 30 or 40% is not a problem.

Last, I would think fund manager may not very keen on SunCon, as it was position number fouth in terms of market cap and profit margin.

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