• SunCon 9M24 core net profit of RM106m (+10% YoY) missed ours and consensus expectations

• Sequential revenue grew on the back of higher project progress billings, but earnings dragged by lower margins and higher tax rate

• Maintain HOLD rating with unchanged target price at RM4.50

Results below expectations

SunCon’s 9M24 core earnings came in at RM106m (+10% YoY) on the back of higher revenue of RM2.1bn (+18% YoY). This is largely attributable to the acceleration in the progress of some newer projects, particularly data center jobs, which helped offset the weaker performance in the precast segment (-27% YoY) caused by the completion of several projects and the slower delivery schedule for new projects. EBITDA margin declined 1ppts to 8.1% with DC jobs at early execution stages. Overall, 9M24 results missed ours and consensus estimates, representing 65% and 61% of both respective forecasts. The deviation was primarily due to higher-than-expected tax recognized in 3Q24, arising from under- provisioning in the previous year from its India operations. SunCon announced a second interim dividend of 2.5sen, bringing YTD DPS to 6sen.

Sequential stronger momentum expected in 4Q24

Sequential 3Q24 revenue surged 33% QoQ to RM865m, driven by higher project recognition of its Sedenak JHBX10 DC, RTS Link, and Sunway-related projects. EBITDA margin fell 2ppts to 6.6% as DC projects remain in the early execution stages. The weaker margins and higher tax impact dragged 3Q24 core earnings lower to RM34m (-9% YoY). We expect a sequential stronger 4Q24 earnings trajectory, supported by its RM7.1bn outstanding order book, with 54% of DC projects. Notably, the largest RM3.5bn Sedenak JHBX10 DC contract in its order book is guided to achieve 45% completion in 4Q24 (3Q24: c.20%), with the project slated to be handed over by the end of 2025.

Maintain HOLD with unchanged TP of RM4.50

We trim our 2024E earnings by 9% to account for lower project margins and a higher effective tax rate. We reiterate our HOLD rating and target price of RM4.50, based on a target 22x PE multiple on 2025E EPS. Key risks to our call include delay in contract awards, higher- than-expected order replenishment, quicker/slower order book recognition, and margin pressures.

Source: Philip Capital Research - 22 Nov 2024