Termination of Vietnam Song Hau 2 Thermal Power Plant

According to a Vietnamese news article, Vietnam’s Ministry of Industry and Trade (MIT) issued document 4579/BCT-DL on 1 July 2024, announcing the termination of the build-operate-transfer (BOT) agreement for the Song Hau 2 Thermal Power Plant (SH2TPP) project.

To recap, the 2.1GW SH2TPP’s BOT contract was initially signed in December 2020 between MIT and Toyo Ventures Holdings Bhd (TOYOVEN). The engineering, procurement, construction, and commissioning (EPCC) contract value of USD2.4bn was subsequently awarded to the 55:45 consortium comprising SUNCON and Power Engineering Consulting Joint Stock Company 2 (PECC2), (SUNCON-PECC2 Consortium) in 2023.

It was reported that the BOT agreement for the power plant has been terminated due to the failure to secure a comprehensive financing scheme before the June 2024 deadline, which was necessary for the project's commencement.

Our View

We are surprised by the news, as we anticipated an extension of the due date following the USD980mn financing facility that TOYOVEN secured in June 2024, which could potentially cover 70% of SH2TPP's invoice amount.

We understand that the EPCC work has yet to start, so there should not be any material impact on SUNCON’s earnings. Additionally, this job is not part of SUNCON’s orderbook replenishment target for this year.

Looking ahead, we believe SUNCON could allocate its resources to focus on the growing advanced technology project (ATP) field, including data centres and semiconductor assembly and tester factories. Additionally, the potential rollout of more mega infrastructure projects in Malaysia presents further opportunities, bolstering the group’s earnings visibility.

Impact

No changes to our earnings forecasts, as we have not factored in the SH2TPP project in our earnings projections and order book replenishment assumptions. Our FY24 order book replenishment assumption is RM4.0bn.

Valuation

We maintain our target price at RM4.46, based on a 22x CY25 EPS. We continue to like the stock due to the following reasons:- (i) SUNCON’s strong position as a contender for mega infrastructure projects, namely MRT3, Johor ART and Penang LRT, (ii) strong earnings visibility on the back of a robust outstanding order book, and (iii) its leading position in securing more jobs in the thriving ATP industry. Maintain Buy call on the stock.

Source: TA Research - 5 Jul 2024