Malaysia Stock Analysis – SUNCON (5263)

The media posted price increases for cement and concrete. Shareholders can rest assured that the Minister of Trade and Consumer Affairs has said that the price of cement and concrete will not increase. The company has RM 5.7 billion contract work in the order book. SUNCON's future internal projects in Malaysia (medical field) include Sunway Damansara (expected capacity of 250 beds), Sunway City Ipoh (expected capacity of 200 beds) and Sunway Iskandar (capacity not disclosed).

SUNCON's external projects (infrastructure construction) in Malaysia's future include Penang's Transport Master Plan (estimated value of RM 46 bil), which is expected to be launched next year; and one is the ECRL project (estimated value of RM 44 bil) ), it is still pending for the government to announce what is the allocation of the mega project.

The company's foreign expansion plans (in Asia and India):

1. On April 1 this year, SUNCON has signed a MOU agreement with the CDL Group in Myanmar. The CDL Group's business is quite diverse, they have food, medical and trade. And 5 SUNCON project engineers to work there with them.

2. SUNCON will have a partnership with the Philippines in the groundwork foundation business.

3. SUNCON will also have a partnership with Indonesia in the infrastructure construction business.

4. SUNCON will also establish a ground-based subsidiary with a 55% stake in Singapore, which was established in January this year.

5. SUNCON have completed 7 highways (worth 500 mil dollars) in India. And now they are bidding together with Indian builders for three projects - Rail, Road (EPCC/HAM).

SUNCON has invested 80 mil SGD in a large prefabrication plant (ICPH) with Hong Leong and are currently optimistic. It is expected to be operational in July 2021 with a production capacity of over 100,000 cubic meters.

The Mechanical, Electrical and Plumbing Engineering Division (MEP) also participates in the bidding of the government's third-generation large-scale solar energy (LSS3) for the launch of the Renewable Energy Project (EPCC), a total of RM 2 bil projects.

Shareholder Q&A session:

1) Q: SUNCON intends to build a fully mechanized prefabrication plant (referred to as ICPH) in a multi-storey building to enhance prefabricated facilities.
a. How much production is expected to increase after the new plant is built?
b. How much will be invested here?
c. What is SUNCON's market share in Singapore?

1) Answer:
a. It is expected to increase the production of 100,000 cubes (approximately 64% increase).
b. SUNCON expects to invest SGD 80 mil (RM 244mil), including land, factory and civil work and equipment.
c. SUNCON's market share in Singapore is ranked in the top three in terms of turnover.

2) Q: Is the company's pre-made business only in Singapore? What is the market share in Malaysia? Who is the competitor?

2) A: Our pre-made business in Malaysia is only limited to the southern part of Malaysia, and only a small part, we can't answer the exact market share in Malaysia, because we are only focusing on Singapore, our market share in Singapore is ranked in the top three. The largest supplier of prefabricated products in Malaysia should be Gamuda.

3) Q: SUNCON currently holds RM 5.7 bil engineering contracts. When will these engineering contracts contribute the most turnover?

3) A: It depends very much on our resources. The first thing to know is not to say that the turnover is increasing, the profit will be better, and we are now more focused on enhancing our operational efficiency so that our profits will improve. For example, we can start the RM 3 bil project right now. Yes, the turnover will be very high, but our cost control and product quality will not meet the standard, hence profit will not be improved.

Louis Yap

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