RHB Research (RHB) expects Sunway Construction (SCGB)’s 2Q23 core earnings to grow QoQ to RM30-40m, from RM26m in 1Q23. This should be underpinned by the ramp-up in progress of projects that were in their early stages during 1Q23.
“SCGB’s potential involvement in the Song Hau 2 power plant in Vietnam plus strong data centre demand in Malaysia may mitigate any downside risks from the local construction sector,” said RHB in the recent Malaysia Results Review.
SCGB’s 1Q23 core profit plunged by 44% QoQ as the RM1.7bn data centre job in Johor just commenced works following the contract award in late Dec 2022.
Despite some delays in the issuance of second and third notices to proceed by the client, this job is still well on track to be completed by end 2024, as project works ramped up over 2Q23.
The National Energy Transition Roadmap (NETR) may bring further opportunities in the form of EPCC jobs for solar power plants, as a renewable energy zone has been earmarked as one of ten flagship catalyst projects.
NETR’s ten flagship catalyst projects should generate a projected total investment of more than RM25bn.
“According to our estimates, SCGB’s jobs related to the sustainable energy segment make up 7% (RM420m) of its total orderbook,” said RHB.
The job to construct a 50MW solar power plant in Perak for Gopeng Berhad has the largest outstanding orderbook of RM166m as at end-1Q23.
Overall, RHB expects its job replenishment to remain steady, backed by its parent. Note that 56% of its RM1.5bn YTD new job wins came from its parents.
Moreover, the Song Hau 2 power plant project in Vietnam worth RM6bn is awaiting financial close, likely by September or October. This could boost its FY24-25F earnings by 30-35%.
Prime Minister Dato’ Seri Anwar Ibrahim’s visit to Vietnam in late July may also bring about further bilateral cooperation between both countries, possibly translating to other energy-related infrastructure opportunities for SCGB in light of Vietnam’s Power Development Master Plan VIII. Coal-fired power plants may make up only 20% of Vietnam’s energy generation capacity by 2030.
RHB derives a new Target Price of RM2.08 and a Buy call. SCGB is supported by catalysts such as the upcoming rollout of Mass Rapid Transit 3, potential wins from the Johor Bahru-Singapore Rapid Transit System link, and reinstatement of previously omitted Light Rail Transit 3 stations worth around RM1bn.
The key risk identified by RHB is the slower-than-expected rollout of projects.
