• In a recent announcement, Sunway Construction (SunCon) SunCon and Yellowwood Properties Sdn Bhd (Yellowwood) have mutually agreed to revise the contract, incorporating the scope and value of work for Notice to Proceed (NTP) 4 in the JHB1X0 data center project at Sedenak, Johor.

• With the addition of NTP 4, the total contract value has increased to approximately RM3.2bn (from RM1.7bn) and further boosted the company’s outstanding orderbook to RM7.9bn.

• With the revised contract value, the company has surpassed its orderbook replenishment target for FY24. We remain positive on the company's growth, with anticipation of slew of infrastructure projects in 2H2024. Therefore, we maintain SunCon as a BUY with higher TP of RM4.01 (from RM3.69) based on FY25F EPS of 18.9sen, pegged to +0.5SD average 5-years PER of 21.2x.

Reinforces Hyperscale Capabilities

SunCon and Yellowwod had previously secured a RM1.7bn contract, known as Project JHB1X0, to construct a data center within Sedenak Tech Park, Johor. This project encompasses piling, building, and related ancillary works necessary for the data center. Currently, the works for NTP 1 have been successfully completed. Moving forward, the remaining tasks for NTP 2, NTP 3, and NTP 4 are set to commence immediately and should be finalized within 20 months, resulting in a new completion date in 1QFY26. These developments are expected to have a positive impact on the company's earnings for FY24-26. We view this progress favorably as it underscores the company's proficiency in executing hyperscale data center project.

Another Record High

The revised contract value has propelled SunCon's orderbook replenishment to yet another record high, surpassing their internal target range of RM2.0-3.0bn. Current new wins stood at RM3.3bn, and this has yet to include the anticipated NTP for the Engineering, Procurement, Construction, and Commissioning (EPCC) contract work for the 2.12GW Thermal power plant project in Hau Giang, Vietnam. With a joint venture ratio of 55:45, this is expected to significantly boost the company's outstanding orderbook to RM14.0bn. Following recent progress regarding the project financing facility, we expect the company to receive the Notice to Proceed (NTP) soon. Additionally, we anticipate further project acquisitions stemming from mega infrastructure initiatives driven by the 40% balance of the Development Expenditure (DE). We also foresee increased demand in the precast segment, driven by the Singapore Housing and Development Board (HDB), along with emerging opportunities in the renewable energy sector.

Maintain BUY with higher TP of RM4.01

We maintain SunCon as a BUY with higher TP of RM4.01, from RM3.69, based on FY25F EPS of 18.9sen and PER of 21.2x. This implies a +0.5 Std.Dev. above its 5-year historical mean PER of 18.7x. Anticipating boost in earnings, we believe SunCon is poised for further growth through accelerated orderbook expansion and a robust tenderbook in the pipeline. The company also benefits from strong support from its parent company, ensuring stability and access to additional resources. With a favorable market in data centre, SunCon is wellpositioned to capitalize on the growing demand, further enhancing its revenue potential.

Source: BIMB Securities Research - 11 Jun 2024