KEY INVESTMENT HIGHLIGHTS

• Core earnings of RM44.1 in 3QFY24, an improvement of +26.7%yoy; 9MFY24 core earnings grew +22.4% to RM115.2m
• Construction revenue rose +40.9%yoy to RM831.8m; PBT grew +64.7%yoy to RM68.5m
• FY24 order book replenishment target remained unchanged at RM4.0b-RM5.0b
• Maintain NEUTRAL with an unchanged TP of RM4.46

Within expectations. Sunway Construction Group Berhad's (SunCon's) core net profit for 3QFY24 came in +26.7%yoy higher at RM44.1m, bringing the cumulative 9MFY24 core earnings to RM115.2m, an increase of +22.4%yoy. At 64.5% of ours and 66.0% of consensus' full-year projections, we deem the results within estimates as we expect stronger progress billings in 4QFY24, driven by its sizeable and fast-paced data centre jobs. The group declared its second interim dividend of 2.5 sen, bringing the year-to-date dividend declared to 6 sen per share.

Construction segment. The group's construction revenue grew +40.9%yoy during the quarter to RM831.8m, generating a PBT of RM68.5m, a growth of +64.7%yoy. This was due to the continued accelerated progress of SunCon's newer projects, primarily data centres.

There was an improvement in PBT margin to 8.2%, as compared to 7.8% last quarter and 7.0% in 3QFY23. We expect the margins at the current level to be sustainable, if not better in future quarters in line with revenue turnover as there is a continued minimal impact from the diesel rationalisation, stable cement prices and lower steel bar prices.

Precast segment. The group's Precast segment revenue posted a - 59.6%yoy decrease in revenue during the quarter to RM33.5m. This led to a decline in the division's PBT by -69.2%yoy and -39.4%qoq to RM2.0m, as most of the projects were completed in the previous quarter, on top of staggered delivery schedules for newer projects. PBT margin remained stable at 6.0% as compared to 6.2% last quarter. In Oct-24, Singapore's Housing and Development Board (HDB) launched 8,573 Build-To-Order flats for sale. Since 90% of the group's precast segment sales are tied to Singapore HDB flats, prospects remain positive for SunCon's precast business. The division is also exploring opportunities beyond HDB projects, with two data centre projects to date.

RM7.1b outstanding order book. SunCon's outstanding order book as at Sep-24 stood at RM7.07b, providing strong earnings visibility up to FY26. About 54.5% of these are data centre projects. It has secured RM4.03b of new jobs to date, and we remain optimistic that the group will be able to achieve the higher end of its RM4.0b-5.0b replenishment target for FY24. Management is actively bidding for jobs, with a tender book of RM10.6b. Jobs on the radar include data centres, warehousing and semiconductor manufacturing domains.

Earnings estimates. We keep our earnings estimates unchanged.

Target price. As such, we also maintain our TP for SunCon at RM4.46, which was derived by pegging its FY25F EPS of 18.6 sen to a PER of 24x, which is +1SD above its five-year mean.

Maintain NEUTRAL. We view that the upcoming pipeline of projects remains healthy for the sector and SunCon is expected to be among the main beneficiaries of the rise in both private and civil construction jobs. The group is now renowned for its data centre construction expertise, currently managing five data centre projects, allowing it to ride on the data centre growth in the country with more construction jobs expected in space. Our NEUTRAL recommendation is premised on the strong rise in SunCon's share price by 2.3x year-to-date, which we believe fairly values the group, which is now trading at 24x FY25F PER.

Source: MIDF Research - 22 Nov 2024