PETALING JAYA: Sunway Construction Group Bhd
(SunCon), which saw an 18% rise in net profit for the second quarter ended June 30, 2024 (2Q24) is likely to see a “supercharged year” in 2025 as it scouts for more contracts in the data centre (DC) space.
In post meeting with the construction group, RHB Research said it remain upbeat about SunCon’s prospects and expects earnings projected to grow at 53% in the financial year 2025 (FY25), underpinned by higher recognition from a mix of DC jobs and coupled the potential DC contracts with around 766.9MW of information technology supply of DCs committed in Malaysia.
“This translates to RM29bil to RM34bil of estimated construction value based on the construction cost of US$8.5mil to US$10mil per MW in Malaysia based on Arizton Advisory,” said the research house in a report.
It noted that SunCon’s tender book expanded to RM13.7bil as of end 2Q24 compared with RM9.4bil as of end 1Q24.
“We understand that the increase in tender book mostly comes from DC-related jobs while the group is also entering into bids for semiconductor-related facilities space. “The group’s focus will not be much on warehousing facilities as DC and semiconductor jobs tend to fetch healthier margins which are slightly above the aggregated profit before tax margin of 5% to 8%,” said the research house.
With RM3.5bil worth of new jobs year-to-date, RHB said its job replenishment target of RM4.5bil is reasonable as more hyperscale DC providers are entering Malaysia.
Labour supply will not be an issue for SunCon because a sizeable number of internal jobs from its parent, Sunway Bhd, is slated to end in 4Q24.
The projects it is undertaking for Sunway include the Sunway Belfield, Sunway Velocity 2B and Sunway Medical Centre Ipoh.Assuming that the manpower from the jobs could be solely used for new jobs, particularly DCs, SunCon has room to take up about RM1.2bil worth of fresh contracts.
For now, RHB Research is not making changes to its earnings estimates. But upside could come from faster-than-expected billings, particularly for the JHB1X0 DC job in Sedenak Tech Park, Johor.
The contract is valued at RM3.2bil and targeted for full completion by 1Q26.
“Hence, our target price of RM5.50 remains to reflect the breadth of industrial jobs like DCs, some from major multinationals, which can weather the risks of not securing public infrastructure jobs,” it said.As for valuation, it said the stock is currently trading at a 21.7 times FY25 forecast price-earnings – a premium to the Bursa Malaysia Construction Index’s 10-year mean of 13 times.
“We think this is justified given SunCon’s return on equity which is significantly higher than its peers and a plethora of catalysts such as securing semiconductor-related contracts and infrastructure ones such as the Penang Light Rail Transit,” the research house added.
