• Maintain HOLD (TP: RM1.99). SunCon’s 9MFY23 Core Net Profit of RM95.8mn (+7.0% YoY) was below ours and consensus expectations, accounting for 66.5% and 69.4% respectively. Despite this, SunCon’s revenue for the same period surged by 9.0% YoY, driven by the peak construction progress in India, heightened contributions from sustainable energy projects, and the increased input from both ICPH and newer projects in the precast segment. We maintain a HOLD on SunCon, with a TP of RM1.99, based on FY24F EPS of 12.8sen and PER of 15.6x.

• Key highlights. In 3QFY23, both revenue and core net profit exhibited substantial growth, increasing by +43.5% and +54.1% YoY respectively. This improvement was driven by enhanced margins in both the construction and precast segments. Furthermore, on a QoQ basis, there was a notable uptick in revenue by 11.5% and 6.8% increase in net profit. The recent wins, firstly through the joint venture with Kajima (M) Sdn Bhd for the Daiso global distribution centre warehouse project and secondly, the development of a data center in Johor, have elevated their outstanding orderbook to RM5.8bn with earning visibility for FY24/25. Nevertheless, in light of the proposed diesel subsidy rationalisation and changes in the sales and services tax outlined in the Federal Budget 2024, there may be an impact on earnings and potential for higher operational costs.

• Earnings Revision. We maintain our earnings for FY24F-FY25F.

• Outlook. With the Large-Scale Solar 4 (LSS4) projects in Kapar, Klang, and Gopeng, Perak nearing completion by year end, we anticipate that SunCon will actively participate in additional bids for renewable energy projects, seizing opportunities from the National Energy Transition Roadmap (NETR), underpinned by their established expertise in the field, particularly in solar initiatives. Consequently, we hold an optimistic outlook on SunCon's potential to secure new projects in the upcoming quarter which further reinforced by their substantial active tender book of RM26.4bn, with anticipation of projects namely, revival of 5 stations in LRT3, Bayan Lepas LRT and MRT3.

Source: BIMB Securities Research - 22 Nov 2023