SUNCON has secured its maiden data centre contract worth RM1.7bn in Johor to finish 2022 on a high with a record RM8.6bn 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 RM11.7bn. BUY with TP of RM2.13 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 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.

SUNCON has secured a RM1.7bn 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 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 RM8.6bn (including a preliminary RM6.0bn Vietnam power plant contract agreement inked with TOYOVEN last week), surging past SUNCON’s internal target of RM2bn and our assumption of RM1.5bn for FY22.

Consequent to the win, SUNCON’s outstanding order book has expanded to a record high of RM11.7bn. 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.

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

Source: Rakuten Research - 4 Jan 2023