PETALING JAYA: Sunway Construction Group Bhd (SunCon) has been downgraded by several research houses which see little upside for the construction group following a 63% surge in its share price this year.
Its shares fell as much as 4% or 13 sen to RM3.22 today, its biggest fall since November 2022, amid weaker-than-expected results for its first quarter ended March 31, 2024 (Q1 FY2024).
Phillip Capital downgraded its “buy” call to “sell” as the counter has “run ahead of fundamentals”.
The research house added that any good news from anticipated job wins have been largely priced into the current share price.
The group has been a key beneficiary of investors’ optimism over the rollout of major government infrastructure and high-margin data centre projects this year.
In a bourse filing yesterday, SunCon reported its net profit for Q1 FY2024 came in 6.4% higher at RM32.4 million from a year ago while revenue rose 16% to RM604.8 million. However, its net profit accounted for only 18% of the consensus full-year estimates.
In its note today, Kenanga Research downgraded the stock to “market perform” from “outperform” as SunCon is fairly valued after the strong run-up in its share price. It maintained its target price (TP) at RM3.16.
It noted that Q1 FY2024 core profit of RM27 million came in at only 16% and 15% of its full-year forecast and the full-year consensus estimate, respectively.
It added Q1 core net profit grew only 4% year-on-year, weighed down by funding cost for its projects in India.
“However, we consider the results within expectations as we expect strong quarters ahead as progress billings accelerate,” it said.
UOB Kay Hian said the current share price has already priced in most positives at this juncture.
“However, we do not rule out the possibility of a further rally in the share price amid the bullish market currently,” the research house said.
It added that SunCon’s earnings could be higher in the coming quarters on the back of accelerated progress billings as well as better profit margins.
Meanwhile, TA Securities has maintained its buy call on SunCon with an increased TP of RM3.79. It noted the group’s outstanding order book stood at RM6.3 billion as of the end-March 2024.
“The group’s growth trajectory is expected to remain robust, supported by a strong outlook in advanced technology projects such as data centres, semiconductor factories, renewable energy projects, along with the potential rollout of domestic mega infrastructure projects,” it said.
It also believes the company could benefit from the Johor government’s initiative to implement an autonomous rapid transit (ART) system in Johor Bahru to alleviate traffic congestion.
This new project is estimated to cost RM7 billion, which is 58% lower than the cost of building a light rail transit (LRT) line.
“SunCon is a strong contender for this ART project, leveraging its proven track record with the construction of the elevated Bus Rapid Transit (BRT) Sunway Line completed in 2015 with a project value of RM452 million,” it added.
SunCon ended the day down 10 sen or 3% at RM3.25, giving the group a market capitalisation of RM4.2 billion.
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