• Still BUY with new MYR4.32 TP from MYR4.12, 14% upside, c.2% FY24F yield. Toyo Ventures Holdings (TOYOVEN MK, NR) via its subsidiary Song Hau 2 Power Company issued a notification letter to the Ministry of Industry and Trade (MOIT) of Vietnam in regard to successfully achieving the financial closing date for the Song Hau 2 thermal power plant (SH2P) on 28 June. Despite the lack of further funding details for SH2P, the latest development marks a huge milestone after some delays.

• Prior to the announcement, on 7 June, TOYOVEN accepted an equipment procurement facility of up to USD980m, which may finance up to 70% of SH2P’s invoice amount. Additionally, TOYOVEN entered into a grid connection agreement with the National Power Transmission Corporation (subsidiary of Vietnam Electricity) on 12 June to the Vietnam National Power System via the 500kV switchyard of the Song Hau Power Complex.

• Back in Mar 2023, Sunway Construction via a JV with Power Engineering Consulting Joint Stock Company 2 (PECC2) executed a formal contract agreement with the owner to formalise the terms and conditions governing the EPCC works for the SH2P project, with SCGB holding 55% while PECC2 having a 45% stake in the JV. The contract value for SH2P project is USD2.4bn (c.MYR11.2bn), which brings SCGB’s effective share to c.MYR6bn.

• We are adopting a prudent approach to make no changes to our earnings estimates for SCGB at this juncture pending the notice to proceed by TOYOVEN for SH2P. As mentioned in our report on 10 June, we project that SH2P may boost earnings by <5% for FY24F and 18-32% for FY25F and FY26F, assuming the initial project value of SH2P remains unchanged.

• Despite no changes to our earnings forecasts, we are bumping up the target P/E pegged to its FY25F EPS to 21.5x from 20.5x. This is to reflect SCGB’s position to secure more data centre jobs in Johor and Selangor (at least 1000MW incoming capacity) with the group already securing MYR4.3bn worth of data centre works (not present during the last construction upcycle in CY17 when it traded at a P/E of c.18.5x). As such, we derive a new TP of MYR4.32 (from MYR4.12) which bakes in a 6% ESG premium.

• We view that further upside for its orderbook (which stands at c.MYR7.9bn excluding SH2P) may come from industrial jobs related to warehouses and semiconductor facilities which the group is actively tendering for. Thus far, SCGB has a job for Daiso Malaysia Group’s global distribution centre warehouse worth MYR298m in Port Klang. Risks of manpower capacity constraints is rather manageable with the possibility of industrial building systems heavily deployed for industrial building projects, in our view. Long- term catalysts would be Sunway’s (SWB MK, BUY, TP: MYR4.00) hospital expansion plan across Penang, Kelantan, and Iskandar Puteri.

• Key risks include the project delays and prolonged period of high material costs.

Source: RHB Research - 1 Jul 2024