Sunway Construction (SGCB)’s potential involvement in the Song Hau 2 power plant in Vietnam alongside data centre projects under its tenderbook size of RM20 billion may mitigate downside risks from the Mass Rapid Transit 3 (MRT3) jobs.
RHB Research (RHB) in the recent Small Cap ASEAN Research estimates SCGB’s latest outstanding orderbook to be RM6 billion, translating into around three years of earnings visibility. SCGB has secured RM1.2 billion of new jobs in financial year 2023 versus RHB’s financial year 2023 job replenishment target of RM2.3 billion.
An upside to its orderbook would be the materialisation of the Song Hau 2 power plant in Vietnam, likely to be known by the end of first half of 2023, which may fetch a job value of RM6 billion, said RHB.
Preliminary analysis by RHB based on an S-curve estimates that the project may boost earnings by 9%, 37% and 39% from the current financial year 2023 future to 2025 future, assuming a 7% profit before tax margin.
Overall, RHB expects quarter one 2023 core earnings to be higher year-on-year, reaching RM37-40 million versus quarter one 2022 core profit of RM35 million. This is underpinned by higher estimated progress billings of certain projects as the projects move higher along the S-curve.
The Penang government received eight submissions from local and international contractors which also comprised consortiums for the Bayan Lepas LRT pre-qualification exercise conducted in Jul-Oct 2022. Recall that SCGB also participated in the pre-qualification stage for the Bayan Lepas LRT.
“With SCGB’s experience in LRT3 via a contract worth RM1.3 billion awarded in Oct 2017 in addition to Mass Rapid Transit 2 jobs, we foresee the company having a high chance to be pre-qualified and securing a job package under the Bayan Lepas LRT project,” said RHB.
All in, valuation appears undemanding as the stock is trading at 12.6x financial year 2024 future price-to-earnings ratio, -1.5 standard deviation from its 5-year mean.
Other catalysts for the stock include securing more jobs from the industrial building space which includes data centres. Key risks identified by RHB include slower-than-expected rollout of projects.
