Sunway Construction Group Bhd (Suncon) announced it has entered into a Project Services Request (PSR) with an US-based multinational technology corporation for the construction of a RM747.8m data centre in Selangor; believed to be in Cyberjaya.
CGS International (CGS), in its Company Flash Note today (Mar 22) , said works will start no later than 15 May 2024 and be divided into four sections, each with designated completion dates. The final section is slated to be completed by 2Q27.
This is Suncon’s third data centre win but the first in Cyberjaya which is positive in terms of spreading its geographical reach. The other two (RM1.7bn Sedenak data centre and RM289m K2 data centre) are in Johor.
Strong wins YTD, may exceed its FY24 targets
With this RM747.8m project win, Suncon’s YTD wins amount to RM1.6bn, bringing its orderbook to RM6.9bn as at Mar 2024. CGS estimates that Suncon’s pretax margin for this project will be at the higher end of its 5-8% guidance.
With such strong wins YTD, CGS thinks Suncon’s FY24F new order win target of RM2.5bn3bn (FY23: RM2.5bn achieved) is looking too conservative. This figure excludes the potential award of the US$2.4bn Song Hau 2 Power Plant Vietnam project where its 55% stake would be worth c.RM6bn.
CGS’s FY24F new order win forecast is RM3.9bn (including precast contracts) and every RM500m increase will raise their FY24F EPS forecast and fair valuation of the company by 3%.
More data centre wins to follow
This RM747.8m data centre win is on top of two early contractor involvement (ECI) data centre projects (RM3.4m each) for two different clients won in Jan 2024. These wins relate to initial design works for potential data centre clients and will likely convert into full construction works eventually.
This implies that there could likely be another two data centre wins in the next six months.
Suncon’s total tenderbook of RM26bn as at Feb 2024 comprises RM13bn for MRT 3, RM6bn for the abovementioned Vietnam power plant, and RM5.5bn for data centres, semiconductor factories and warehouses.
CGS Reiterates Add and TP of RM3.44
CGS reiterated their Add call and SOP-based TP of RM3.44, equivalent to 19.6x CY25F P/E (0.5 s.d. above mean since 2015). We like Suncon for its strong execution track record, 3-year EPS CAGR of 15% over FY23-FY26F, and market-leading ROEs of 21- 24% for FY24-FY26F.
Key downside risks: increased raw material costs and labour shortages.
Re-rating catalysts: award of Vietnam project and more data centre projects.
