SUNCON has secured its maiden data centre contract worth RM1.7b in Johor and finished 2022 with a bang with a record RM8.6b worth of new job wins. We are positive over this latest fast-tracked contract (18 months) which offer high margins and lifted its outstanding order book to an all time high of RM11.7b. We raise FY23F earnings by 9%, lift our TP by 10% to RM2.13 (from RM1.93) and reiterate our OUTPERFORM call.

Maiden data centre job. SUNCON has secured a RM1.7b contract (known as Project JHB1X0) from Yellowwood Properties Sdn Bhd to construct a data centre located in Sedenak Tech Park, Johor. The scope of works entails the piling, building and related ancillary works required for the data centre. The construction period spans c.18 months ending 3QFY24.

We gathered that the ultimate client is Yondr Group from USA, a data centre service provider which in 2022 first expressed its plans to build a 200MW hyperscale data centre in Sedenak Tech Park covering 72.8 acres in a few phases.

We are positive on the win bringing its FY22 replenishment to RM8.6b (including a preliminary RM6.0b Vietnam power plant contract agreement inked with TOYOVEN last week), blowing away SUNCON’s internal target of RM2b and our assumption of RM1.5b for FY22. Consequent to the win, SUNCON’s outstanding order book has expanded to a record high of RM11.7b. Given the fast-tracked nature, large-scale and high technical requirements for this latest contract, we believe the EBIT margin is skewed towards the upper end of the usual 5-8% range guided.

Assumptions and forecasts. Maintain FY22F earnings but raise FY23F earnings by 9% after factoring in this new contract win. Our FY23F replenishment assumption is RM2.2b.

Maintain OUTPERFORM with higher TP of RM2.13 (from RM1.93) based on unchanged 16x PER. We like SUNCON for: (i) its strong replenishment pipeline from parent SUNWAY, (ii) its dominant position in the local construction space with extensive capabilities and track record in building, infrastructure, solar, mechanical, electrical and plumbing works, and (iii) its strong balance sheet that allows it to participate in deferred payment model projects. We accord a 5% premium to its TP given a 4- star ESG rating as appraised by us (see Page 4).

Risks to our call include: (i) sustained weak flows of construction jobs from public and private sectors, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rising cost of building materials.

Source: Kenanga Research - 4 Jan 2023