• Maintain BUY and MYR2.22 TP, 16% upside with c.4% FY24F yield. Sunway Construction has won two jobs worth MYR487m in total – MYR297.7m (50% effective share via SCGB-Kajima (Malaysia) JV) from Daiso Malaysia for a global distribution centre warehouse in Pulau Indah, Selangor and a MYR190m job from K2 Strategic Infrastructure Malaysia (K2) for a data centre in Johor. We believe that these latest contract wins solidify its position in the industrial building segment (c.28% of orderbook).

• SCGB has secured MYR2.2bn worth of new jobs YTD, spread over 13 contracts. The job for Daiso Malaysia’s warehouse is expected to be completed in 34.5 months, while the K2 data centre project in Johor may take around 14 months to finish. This is SCGB’s second data centre job after the MYR1.7bn data centre contract by Yellowwood Properties. While details were not disclosed, the said data centre could likely be in Sedenak Tech Park 1 (STeP1), as JLand Group highlighted during our virtual session with them that K2 Data Centres is one of the investors in STeP 1 (Figure 1). We assume the PBT margins for both jobs to range 6-8%.

• We estimate SCGB’s latest orderbook at MYR5.9bn, providing earnings visibility for the next three years. The group’s c.MYR20bn tenderbook mainly comprises Mass Rapid Transit 3 packages and the Song Hau 2 power plant in Vietnam (likely to be known in 1H24). Nevertheless, there are also tenders related to Johor, namely for Johor Bahru-Singapore Rapid Transit System (RTS) Link’s packages 2A and 2B for the Immigration, Custom and Quarantine Complex (ICQC).

• We make no changes to our earnings estimates as the latest job wins are within our FY23F job replenishment target of MYR2.5bn. As such, our TP remains at MYR2.22, and includes a 6% premium to our intrinsic valuation based on our ESG scoring methodology. Our unchanged valuation of FY24F 17x (above Bursa Malaysia Construction’s 5-year mean P/E of 12.4x), pegged to our FY24F EPS, is justified on SCGB’s steady flow of jobs that vary from renewable energy and infrastructure to commercial and industrial buildings. Furthermore, SCGB’s portfolio of data centre jobs may enable it to leverage on the South-East Asian data centre construction market, which is expected to grow by USD3.6bn from 2021 to 2025.

• Prospects. We believe that packages 2A and 2B (estimated at c.MYR300m in total) for the ICQC for the RTS Link may be awarded within 4Q23, with SCGB being the frontrunner as it was awarded a MYR112m package by Adil Permata for piling works of the ICQC in FY22. In the long run, Sunway (SWB MK, BUY, TP: MYR2.67) has 1,632 acres of land situated near the Second Link (of a total landbank of 3,063 acres in Malaysia) – enabling the Sunway Iskandar project (GDV: MYR29bn) to benefit from ongoing and upcoming property and infrastructure development catalysts, with MYR1.7bn jobs completed in Johor. This justifies our BUY call on the stock.

• Key downside risks: Project delays and a prolonged period of high material costs. 

Source: RHB Securities Research - 6 Oct 2023