Investment Highlights

• Maintain BUY on Sunway Construction (SunCon) with a higher fair value (FV) of RM3.70/share (from RM3.59/share) due to higher earnings estimates. Our revised FV is based on an unchanged 20x FY25F P/E, which is on par with its 3- year average. Our 4-star ESG rating remains unchanged, which yields a premium of 3% to our FV.

• SunCon has secured a RM1.5bil addition to the existing JHB1X0 contract. The contract is now worth RM3.2bil, making it SunCon’s largest single contract since inception. Work starts immediately with targeted completion within 20 months by Feb 2026.

• There is no mention of the profit margin, but it was stated that this contract will contribute positively towards FY24F revenue and earnings.

• With the new contract accretion, we have raised our FY24F/FY25F/26F earnings by 1.7%/ 3.6%/0.1%.

• This job win boosts SunCon’s order book by 25% to RM7.9bil from RM6.3bil as at end-1QFY24. This order book will keep it busy for at least 2-3 years.

• Year-to-date, SunCon has already secured RM3.3bil of new orders, which exceeds its target of RM2.5-RM3.0bil of job replenishment for this year.

SunCon currently trades at 18x FY25F PE, below its 3-year average of 20x, with a decent dividend yield of 3.3%. CONTRACT AMENDMENT EXHIBIT 2: NET DEBT AND NET GEARING SunCon announced on Bursa Malaysia of a mutual amendment to Project JHB1X0 contract between the group and Yellowwood Properties. The pertinent points are listed below:

➢ The value and works for NTP 4 has been amended.

➢ The total contract value has risen to RM3.2bil, an addition of RM1.5bil from the original sum of RM1.7bil. This contract value is based on a fixed-price lump-sum amount and includes all applicable taxes.

➢ In the revised project timeline, it will take roughly 20 months with a target completion date of 1Q2026 (Feb 2026). Work is to start immediately. 

The announcement also states that this revised contract will contribute positively to FY24F revenue and earnings.

Our Thoughts

❑ Pleasant surprise 

This is SunCon’s single largest contract to date, which is a significant milestone to an already impressive track record. We think this will open the door for more major data centre jobs going forward.

While management has stated previously that they are bidding and being considered for extension of existing data centre jobs, the speed and value of the announcement was bigger than expected.

❑ Revise earnings forecasts

We revise our earnings forecast for FY24-26F due to this announcement.

❑ Balance sheet remains at comfortable levels

SunCon’s latest net debt stood at RM524mil as at the end of 1Q2024 with a net gearing ratio of 0.56x. While this is noticeably higher than its historical norms, it is a function of more jobs undertaken by the company.

❑ Order book swelled to RM7.9bil

With this new job win, SunCon’s total outstanding orderbook has swelled to RM7.9bil from RM6.3bil as at end-1QFY24 and OUR THOUGHTS there are 49 ongoing projects. We believe this will keep SunCon busy for the next 2-3 years.

Source: AmInvest Research - 11 Jun 2024