Wins New Order Worth RM1.5bn

Yesterday, SUNCON made an announcement regarding the formalisation of an Amendment Deed with Yellowwood Properties. As a recap, SUNCON secured a substantial RM1.7bn contract (known as project JHB1X0) on 31 December 2022, to construct a data centre within Sedenak Tech Park, Johor for Yellowwood Properties. The contract's execution was structured into three phases (Notice to Proceed: NTP 1 to 3), with the initial phase commencing upon contract signing.

Key terms of the Amendment Deed include:

1) As of 10 June 2024, NTP 1 has been completed. Should Yellowwood Properties require SUNCON to carry out the remaining works for NTP 2, NTP 3, and NTP 4 (NTPs), Yellowwood Properties shall instruct SUNCON to commence the respective NTP works no later than 30 June 2024.

2) With the inclusion of NTP 4, the total contract amount has been revised to approximately RM3.2bn.

3) The NTP works are expected to be completed in four phases within 20 months from the issuance date of the NTPs.

Our View

We are upbeat about the new job win, which will nearly double the JHB1X0 project value from RM1.7bn to RM3.2bn. This expansion will significantly enhance the company's presence in the growing data centre market and boost its future earnings visibility.

With its tenth job secured, SUNCON has achieved a YTD total of RM3.3bn in new orders, exceeding our initial orderbook replenishment assumptions of RM3.0bn for the year. According to management, the group’s total outstanding order book now stands at RM7.9bn, equivalent to 3x FY23 revenue.

Assuming a 2-year historical PBT margin of 7.8%, we anticipate that this new contract win of RM1.5bn will contribute a net profit of RM89mn throughout the construction period.

Impact

Our FY24/25/26 earnings forecasts are adjusted higher by 2.8%/15.3%/15.8%, respectively, after revising our FY24 new job replenishment assumptions from RM3.0bn to RM4.0bn.

Valuation

Following the earnings revision, we arrive at a new TP of RM4.46 based on an unchanged target PER 22x CY25 EPS. Maintain Buy call on the stock.

Source: TA Research - 11 Jun 2024