Awards RM416.8mn Sub-Contract Work to JV Unit

Sunway Construction Group Bhd, which secured an RM747.8mn contract from a US multinational technology business to build a data centre in Selangor in March, awarded a RM416.8mn subcontract on Friday. According to Bursa filling, Sunway Engie DC Sdn Bhd, a joint venture between Sunway Engineering Sdn Bhd (70%) and Engie Services Malaysia Sdn Bhd (30%), won the mechanical and electrical (M&E) system subcontract.

ENGIE, a pioneer in the data centre construction industry, specialises in developing, owning, and operating district cooling, onsite solar, and onsite thermal energy facilities for the production of utilities. Additionally, ENGIE provides energy efficiency solutions as well as engineering, design, and installation services for data centre projects.

Currently, the project is progressing as scheduled and is expected to be completed by the end of the 2QCY27.

Our View

We are optimistic about this new project development, as we believe the joint venture partnership will contribute positively and synergistically, leveraging the technical expertise of SESB and ENGIE in the construction and M&E fields. Meanwhile, we anticipate SUNCON will benefit from this collaboration by enhancing its engineering solutions for managing sophisticated construction projects. This JV is expected to elevate SUNCON's capabilities and position it favourably for sophisticated projects in the future, subsequently capitalising on the robust advanced technology project (ATP) space.

To date, we estimate SUNCON’s outstanding orderbook at approximately RM7.2bn, equivalent to 2.7x FY23 revenue.

Impact

No changes to our earnings forecasts, as there is no major impact on the earnings.

Valuation

We reiterate our target price of RM6.15, based on a 26x CY25 EPS and 3% ESG premium given our 4-star rating. 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 - 22 Jul 2024