• Maintain BUY (TP: RM3.65). SunCon’s Net Profit of RM32.4mn (+16.4% YoY) made up 18.1% of our estimate, hence deemed in-line with our expectation as we expect higher earnings in 2HFY24. The company’s bottom line has improved compared to the corresponding quarter, driven by higher margins from the Integrated Construction and Prefabrication Hub (ICPH) project. Meanwhile, SunCon's top-line saw a 15.8% YoY increase, mainly due to higher billings from newer projects in both the construction and precast segments. We re-iterate our BUY call on SunCon with TP of RM3.69 based on 5-year average PER of 19.5x pegged to FY25F EPS of 18.9sen.

• Key highlights. In 1QFY24, both revenue and net profit saw a decline of 30.6% and 34.3% respectively compared to the preceding quarter. The higher baseline in the previous quarter was primarily driven by increased contributions from projects nearing completion. Despite the decrease in turnover, SunCon’s profit margin remained relatively consistent at 7% in both quarters. We note that the company has been actively involved in constructing Advanced Technology Facilities (ATF), whereby YTD FY24 itself, SunCon has successfully secured approximately RM800mn worth of data center projects within the Klang Valley. Simultaneously, on the international front, SunCon has achieved the Commercial Operation Date for the Meensurutti Chidambaram Highway project and they are also in the process of finalising a settlement agreement for the Thorapalli Agraharam Jittandahalli Highway project. With progress on these two projects, we anticipate its net gearing to ease considering that both projects are under the Hybrid Annuity Model (HAM). Furthermore, the Large-Scale Solar 4 (LSS4) project is expected to be completed in 2QFY24.

• Earnings Revision. No change to our forecast.

• Outlook. We believe SunCon's growth trajectory remains strong and to continue its growth momentum, bolstered by substantial outstanding orderbook of RM6.9bn. This is underpinned by their active participation in various tenders within the industrial property and data center sectors, alongside exploring potential ATF projects in ASEAN countries through collaborations with local joint-venture partners. Additionally, the anticipated surge in major infrastructure initiatives presents promising prospects for the company, supported by its significant tender book of RM9.4bn. Beyond opportunities in both the private and public sectors, SunCon's in-house projects from its parent company, Sunway Berhad, promise steady job flows, particularly in building construction. We continue to like SunCon due to: i) first-mover advantage in Johor's data center industry, ii) steady flow of internal contracts from parent company, and iii) lucrative precast demand from Singapore.

Source: BIMB Securities Research - 21 May 2024