Sunway Holdings Bhd  (March 7, RM2.20)
Maintain buy at RM2.18 with target price of RM2.60: Sunway announced last Friday that it had on March 3, 2011, accepted the letter of award for a contract worth RM258 million from IDR Assets Sdn Bhd for the proposed construction and completion of package 4 – facility construction for Legoland Malaysia Theme Park development in Iskandar Malaysia. The contract is targeted to be completed on June 2, 2012 with a construction period of 15 months.

This contract is Sunway’s second contract secured in FY11. Year-to-date, the group has secured RM295 million order book replenishment which boosted outstanding construction order book to RM2.7 billion. No changes are required to our earnings estimate as this contract win falls within our annual order book replenishment of RM1.5 billion. As one of the local construction players with a strong brand name, we think the group is poised to benefit from the impending roll out of contracts in 2011 both from remnant 9MP projects as well as the much touted mass rapid transit (MRT) project. Furthermore, apart from the tunnelling portion, civil works for the MRT project will only be open to local contractors. The completion of the merger exercise with sister company Sunway City Bhd (SunCity) by 1HFY11 could also assist the group in participating in larger scale projects. Total construction tender book remains at about RM16 billion, including highway projects in India and Phase 2 of the Arzanah development in Abu Dhabi.

Sunway is our top buy for the construction sector. This is premised on (1) strong earnings growth of 17.8% for FY11; (2) undemanding forward P/E valuation of 7.1 times; (3) more landbank acquisition in the pipeline; and (4) strength in securing overseas construction contracts. Although our RNAV estimate stands at RM3.45, our target price is adjusted to reflect the offer price of RM2.60 in the proposed merger with SunCity. — ECM Libra Research, March 7