• Suncon clinches three contract wins worth RM532m, bringing YTD-5 Oct 23 new wins to RM2.2bn, exceeding its FY23F guidance of RM2bn.

• We see potential for RM6bn additional new orders from Song Hau 2 Vietnam power plant by Dec 23.

• Reiterate an Add rating, with an unchanged RM2.14 TP.

Clinches Three Contract Wins Worth RM532m

• Sunway Construction Group (Suncon) today announced three contract wins worth a total of c.RM532m.

• These are:

i) Kaijma Suncon JV (50:50) from Daiso Malaysia Group, for the proposed design and construction of Daiso Global Distribution Center warehouse at Pulau Indah, Port Klang, for RM594.4m (Suncon’s share: RM297m), for a period of 34.5 months with completion date slated for 2QCY26F;

ii) Data centre project in Johor worth RM190m, from K2 Strategic Infrastructure Malaysia, for a period of 14 months, with the final phase to be completed by 4QCY24F; and 

iii) Preliminary contract for Song Hau 2 Vietnam power plant extending the notice to proceed (NTP) period, which would provide Suncon with limited access to the site to carry out phases 1 and 2 for works not exceeding US$9.5m (c.RM45). This forms part of the works before obtaining the NTP from the owner.

YTD Wins Exceed Guidance, With Potential for RM6bn New Wins

• With these contract wins, Suncon’s YTD wins amount to RM2.2bn, which exceeds its RM2bn new order wins target for FY23F and brings its outstanding order book to RM6.4bn.

• This is largely within our FY23F new order win forecast of RM2.2bn (including precast). More importantly, we believe the limited access works of US$9.5m for the Song Hau 2 Vietnam power plant paves the way for an additional RM6bn worth of works for this project. This is assuming its JV company Sunway-PECC2 Consortium clinches the full US$2.4bn Vietnam power plant project, where its 55% stake would be worth RM6bn. We expect this to be announced by Nov/Dec 23.

Successful Inroads Into the Industrial and Data Centre Space

• We are positive on these wins as we believe it proves that Suncon has been successful in making inroads into the industrial warehouse, data centre and semiconductor factory space, and less reliant on traditional building projects. In FY22, Suncon clinched a RM1.7bn industrial project to build a data centre in Sedenak Tech Park, Johor, which was its largest project clinched that year.

Reiterate Add, TP of RM2.14

• We reiterate our Add rating and SOP-based TP of RM2.14, equivalent to 16.5x FY24F P/E (0.5 s.d. below its mean since 2015). We like Suncon for its strong execution track record, ready pipeline from Sunway Bhd (SWB, Add, CP: RM1.90), balance sheet strength, and market-leading ROEs of 18-20% and decent dividend yields of 3-4% for FY23F-FY24F. Key catalysts include higher new contract wins and improvement in margins, while key downside risks include delays in contract awards and higher raw material costs.

Source: CGS-CIMB Research - 5 Oct 2023