• In relation to its thermal power plant project in Vietnam, SunCon (via its wholly owned Sunway Construction) and Power Engineering Consulting Joint Stock Company 2 (PECC2) have entered into a consortium agreement.

• As outlined in the agreement, SunCon will be the leader of the Sunway-PECC2 consortium and the proportion of the joint venture will be 55:45 (vs previous indication of 60:40).

• Sunway-PECC2 with Toyo Ink Group (Toyo) and Song Hau 2 Power Company (Song Hau 2) have also entered into a formal contract agreement. The contract price is higher at US$2.42bil (or RM11bil) vs US$2.2bil previously. We believe that the commencement of the project will depend on Toyo achieving financial close, which is expected to be by end-Mar 2023.

• The project will be carried out over 54 months (vs estimation of 57months previously). As such, we estimate SunCon’s share of PBT from the award to be RM100mil annually, or 61% of its FY24F net profit. We will be reviewing our earnings forecast later.

• To recap, Sunway-PECC2 Consortium entered into an interim engineering procurement and construction agreement (interim EPC agreement) with Toyo and Song Hau 2 at the end-Dec 2022.

• Song Hau 2 was incorporated in Dec 2022 in Vietnam to undertake the development of 2 units of 1,060MW 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 build-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.

• Currently, SunCon trades at a FY24F PE of 13x, 7% lower than our benchmark of 14x for large-cap construction stocks. We maintain BUY on SunCon with a fair value of RM1.84/share.

Source: AmInvest Research - 2 Mar 2023