In its latest streak of wins, Sunway Construction Group Berhad clinched an RM1.7b contract to build a data centre at the Sedenak Tech Park (STeP) in Johor on Dec 31, 2022, bringing the group’s total order book replenishment to RM2.58b, surpassing its RM2b target.
The group will undertake the design/design development, construction, and completion of works such as piling, structural precast concrete, architecture works, mechanical, and electric services, and other associated and external ancillary works. Works commenced on the same date of the award and the project is expected to be completed within 21 months or by 3QCY24.
MIDF is of view, assuming a profit margin of 6%, expects the project to contribute RM102m to the group’s bottom line – RM58.3m in FY23 and RM43.7m in FY24, which comes within expectations. This latest win brings SunCon’s outstanding order book to RM5.7b, giving it solid earnings visibility up to FY24. The house sees this positively on the group’s ability to secure more jobs in FY23, which will bring its order book to record high levels. It is currently negotiating the terms and conditions for the engineering, procurement, and construction (EPC) of a coal-fired power plant at the Hau Giang Province in Vietnam, a project worth USD2.2b (RM9.69b) which will be undertaken via a 60:40 joint venture with Power Engineering Consulting Joint Stock Company 2, a power company listed on the Ho Chi Minh Stock Exchange.
In Malaysia, SunCon’s prospects would come from internally secured jobs from Sunway Group and potentially one of the main MRT3 packages. The group submitted its bids for package CMC301 and CMC302, which is estimated to be RM3.1b and RM14.8b respectively.
MIDF is maintaining its estimates for SunCon with the target price unchanged at RM1.87, derived by pegging SunCon’s FY23F EPS of 10.7 sen to a forward PE of 17.5x.
Hence the Buy call and remains a top pick for the construction sector due to several factors, such as its ability to handle its margins well and its strong balance sheet, which is in a net cash position of RM175.5m. There is also the observation
that the group is beginning to grow its overseas operations which would diversify it from being predominantly exposed to
the Malaysian construction sector. Its RM5.7b outstanding order book consists of projects in India (10.6%) and Singapore
(9.4%).
The research house is also confident of the group’s ongoing negotiations for the power plant in Vietnam. Recall that SunCon also has its upcoming Integrated Construction & Prefabrication Hub (ICPH) in Singapore, which will cater extensively to the
country’s Housing and Development Board (HDB) projects. All factors considered, we reiterate our BUY recommendation on
SunCon
