MIDF Research expects SunCon to benefit from the development initiatives lined out in Budget 2024 and the Mid-Term Review of the 12th Malaysia Plan and other off-budget projects.
PETALING JAYA: Momentum is building up in Sunway Construction Group Bhd
(SunCon), analysts say, underpinned by strong replenishment of jobs and a more significant contribution from its precast segment.
MIDF Research called SunCon a “safe pick” for the construction sector, backed by its strong order book of RM5.79bil with earnings visibility up to financial year 2025 (FY25).
It is noteworthy that the construction giant has already surpassed its FY23 job replenishment target of RM2bil in October 2023 after securing two new projects – a RM190mil data centre project in Johor and RM297.7mil for a warehouse in Port Klang.
“The active tender book level currently stands at RM26.4bil, as management continues to actively bid for data centres and semiconductor foundry projects.
“It is also monitoring the National Energy Transition Roadmap or NETR for potential opportunities,” the research house said in a note.
Looking ahead, MIDF Research expects SunCon to benefit from the development initiatives lined out in Budget 2024 and the Mid-Term Review of the 12th Malaysia Plan and other off-budget projects such as the Mass Rapid Transit Line 3.
“The group’s precast business is also expected to provide a more significant contribution moving forward with its integrated construction and prefabrication hub in Singapore, where 90% of its revenue is from the country’s Housing and Development Board flats,” it said.
MIDF Research maintained its “buy” call on SunCon with a target price of RM2.09.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said that SunCon’s earnings of RM98.8mil in the first nine months of FY23 has met its and consensus expectations.
The research house further expects a “sequentially stronger quarter” to wrap up FY23, to be driven by billings from completing projects.
SunCon is also expected to see more contract wins for the remainder of this year.
In the third quarter ended Sept 30, SunCon reported a revenue of RM673.5mil, which was up 11.5% quarter-on-quarter (q-o-q) and 43.5% year-on-year (y-o-y).
Core net profit was reported at RM37.8mil, marking an increase of 13.9% q-o-q and 47% y-o-y.
This brought the nine-month FY23 core net profit to RM98.8mil, with a flattish increment of 1% y-o-y as higher finance costs diluted the impact of stronger revenue performance.
“SunCon turned net debt in the first quarter of FY23 due to higher progress at its Indian projects which follows the hybrid annuity model (deferred payments).
“Nevertheless, we expect balance sheet restoration next year with both projects nearing completion,” according to HLIB Research.
On another note, CGS-CIMB Research pointed out that all eyes are on the potential award of Song Hau 2 Vietnam power plant project to SunCon.
Last month, SunCon had secured the preliminary works contract for Song Hau 2 Vietnam power plant worth US$9.5mil.
“We believe the US$9.5mil limited access works contract for the Song Hau 2 Vietnam power plant is a precursor for an additional RM6bil worth of works for this project.
“This is assuming the Sunway-PECC2 Consortium clinches the full US$2.4bil Vietnam power plant project, where its 55% stake in the consortium would be worth RM6bil.
Sunway-PECC2 is an unincorporated consortium comprising Sunway Construction Sdn Bhd and Power Engineering Consulting Joint Stock Company 2 (PECC2), while Song Hau 2 Power Company is a unit of Toyo Ink.
“We understand from SunCon that the project’s award had been delayed due to some country-specific bureaucracy but the situation has since improved,” CGS-CIMB Research said.
CGS-CIMB Research has an “add” call on SunCon and a target price of RM2.14.
“This is reflective of SunCon’s strong execution track record, ready pipeline from Sunway Bhd, balance sheet strength, and market-leading return on equity of 18% to 20% and decent dividend yields of 3% to 4% for FY23 to FY24, in our view,” it said.
