It is clear that the construction industry has had a rough ride over the past three years. The operating landscape has had to weather political uncertainties that have caused either delays in or revisions of public infrastructure projects, a soft property market resulting in less construction work and, the least anticipated, the Covid-19 pandemic with its Movement Control Orders and consequent shortage of foreign labour. 

But as the saying goes, when the going gets tough, the tough get going. Although the harsh operating conditions have weighed on Sunway Construction Group Bhd (SunCon), it achieved the highest return on equity (ROE) among its big-cap peers in the construction sector over the three years under review by The Edge Billion Ringgit Club (BRC) — 2018 to 2020. This is the third consecutive year in which the company has won the award. 

It is no surprise that the construction group’s ROE was trending downward from the financial year ended Dec 31, 2018 (FY2018) to FY2020. The group’s ROE was 25.5% in FY2018, and fell to 21.3% in FY2019 and 11.6% in FY2020. This translates into a weighted ROE of 17.3% over the three-year period, which was still the highest in its category. 

The declining ROE is the result of a drop in profit after tax (PAT). SunCon’s PAT came in at RM144.4 million in FY2018 — the highest ever since FY2014. However, it fell to RM129.3 million in FY2019 and dropped further to RM72.7 million in FY2020 as the pandemic dealt a big blow across the board. 

Nonetheless, investment analysts who track the group see promising prospects ahead. 

SunCon is one of the companies expected to benefit from the government’s highest-ever development expenditure of RM400 billion over the next five years, as described under the 12th Malaysia Plan. 

Eight of 13 analysts who cover SunCon have a “buy” recommendation on the stock; the remaining three have a “hold” call. The highest target price is RM2.20 and the lowest, RM1.50. 

SunCon, one of the country’s biggest construction companies, is expected to secure more jobs as the government rolls out more infrastructure projects, including mega infrastructure ones such as the MRT Line 3, to drive economic growth. 

One factor that makes SunCon stand out among its peers is its strong parentage as part of the Sunway Group. 

While SunCon is a strong construction company on its own, able to secure projects from outside the Sunway Group, it helps to be part of a large property development, retail and hospitality group as well. 

Furthermore, SunCon’s focus on improving its construction methods, including using pre-fabricated construction technology, has enabled the group to widen its profit margins over the years. Its strong balance sheet allows SunCon to take on big projects. 

While analysts are still lukewarm over the prospects for the construction sector, owing to the Covid-19 pandemic and stagnated property development, SunCon remains one of their top picks in the sector. 

Edwin Woo, an analyst at Hong Leong Investment Bank Research, recommends SunCon as his top pick because of its strong balance sheet, extensive track record of infrastructure projects and strong support from its parent company. 

“The company’s ability to secure overseas contracts and source ... jobs from parent-co provides a shield from a weak flow of government projects,” Woo says in an Oct 5 report on the construction sector. 

SunCon has guided for an overall job win, including the supply of precast products, of RM2 billion in FY2021. This year, up to October, the group has secured new jobs worth a total of RM620 million, while its outstanding construction and precast product order backlogs stand at almost RM5 billion. 

Joshua Ng, an analyst at AmInvestment, says that while it is still cautious on the outlook for the local construction sector, he believes SunCon can weather the sector’s downturn better than its peers, given its proven ability to compete under open bidding, coupled with the availability of building jobs from its parent and sister companies.