• Sunway-PECC2 Consortium has entered into an Interim Engineering, Procurement and Construction Agreement (Interim EPC Agreement) with Toyo Ink Group (Toyo) and Song Hau 2 Power Company (Song Hau 2). See Exhibit 2 for corporate structure of the parties involved.

• Song Hau 2 was incorporated in Dec 2022 in Vietnam to undertake the development of 2 units of 1,060 MW Coal Fired Thermal Power Plant Project in the Song Hau Complex, Hau Giang Province, Vietnam. On 29 Dec 2020, Toyo and Song Hau 2 entered into a Built-Operate-Transfer (BOT) contract with the Ministry of Industry and Trade of Vietnam to undertake the investment and development of the project on a BOT basis for a concession period of 25 years.

• The Interim EPC Agreement serves as a framework for negotiations and discussions between the parties to establish the detailed terms and conditions for Sunway-PECC2’s performance of the works which shall be formalised in Engineering, Procurement and Construction Contract (EPC Contract).

• The contract price amounts to US$2.2bil (or RM9.7bil) and is expected to be carried out over 57 months. We estimate SunCon’s share of PBT from the award to be RM90mil annually or 64% of its FY24F net profit.

• In spite of this, we keep our earnings estimates for SunCon for now as the Interim EPC Agreement will be terminated if the EPC Contract is not executed by the parties within 6 months from the date of execution of the Interim Agreement. We may revise our order book replenishment assumptions if the EPC Contract is executed in 2023F.

• Currently, our order book replenishment assumption for FY23F is RM2bil, potentially from the construction of data centres and semi-conductor manufacturing plants as well as internal building jobs from related parties within the Sunway Group. SunCon is also well-positioned to secure MRT3 jobs due to its strong balance sheet and proven track records in MRT1 and MRT2.

• Currently, SunCon trades at a fair 14.2x FY24F PE, near our benchmark of 14x for large cap construction stocks.

Source: AmInvest Research - 29 Dec 2022