• SunCon’s RM4.5-5bn annual contract win target to be supported by the aggressive expansion and upsizing of DC projects

• DC projects now 52% of its order book is expected to increase to 70% in 2025E

• Raise EPS by 10–13% and lift our target price to RM4.50. Upgrade to HOLD

DC contracts being its key order book driver in the next 3 years

We expect SunCon to continue benefiting from favourable DC tailwinds, with 4GW capacity to be added, potentially translating to RM40bn worth of contract awards. As an early entrant in this sector, SunCon enjoys a strong competitive edge, bolstered by its expertise in DC design and MEP services. The total value of DC contracts secured stands at RM4.6bn, with YTD new contracts amounting to RM3.9bn, bringing the order book to RM7.8bn. DC projects now comprise c.52% of the orderbook, covering 5 projects for 4 major DC clients. Nearly all its clients plan for further expansions, positioning SunCon favourably for future contract upsizing. SunCon is also actively bidding for 4 DC projects with potential new clients, with 1– 2 tenders likely to be finalized by end24.

Progress on track, further expansion, and upsizing opportunities

The current DC orderbook consists of K2 (RM65m), early contractor involvement (ECI) for a US MNC (RM57m), project service request (PSR) for another US MNC (RM737m), and the largest Sedenak JHBX10 (RM3.3bn, following the recent contract upsize). The K2 project is on track for handover by end24, with the subsequent phase expected to roll out in 2025. The Sedenak DC is expected to reach 50% completion by year-end, with full handover by the end25. Further expansion or upsizing opportunities from the Sedenak DC end client may materialize in 2H25. The PSR work package is in the early stages, but we expect progress to accelerate in 2H25. The ECI work packages could convert into full-scale design and build contracts with a combined value of RM1-1.5bn in early25.

Upgrade HOLD and raise TP to RM4.50

We raise our 2025–26E EPS forecast by 10-13%, factoring in quicker progress recognition from ongoing DC projects. Our annual order wins assumption remains at RM4.5–5bn. Post earnings upgrade, we lift our 12-month TP to RM4.50 (from RM3.60) based on a higher target 22x (+1SD its 5-year mean) PE multiple on 2025E EPS to reflect the stronger DC earnings delivery, with a shorter project turnaround and command better project margins. We upgrade to a HOLD rating (from SELL). Downside risks include slower-than-expected order book recognition and margin pressures.

Source: Philip Capital Research - 6 Nov 2024