KUALA LUMPUR (Nov 22): Analysts are projecting a stronger showing from Sunway Construction Group Berhad (KL:SUNCON) in 4Q2024, driven by significant job progress, especially data centre (DC)-led projects.

RHB Research noted that Sunway Construction’s 3QFY2024 results were in line with expectations and envisaged a stronger 4Q, backed by greater progress in its DC jobs.

The anticipated improvement is largely attributed to the advancement of the first package for the RM1.7 billion JHB1X0 data centre project in Johor.

However, RHB expects Sunway Construction to see lower earnings in FY2024 before a projected 53% growth in FY2025, primarily supported by stronger revenue recognition from a mix of DC projects, which make up about half of its outstanding order book. 

 RHB also noted the long-term potential for Sunway Construction, particularly with the development of the Johor-Singapore Special Economic Zone through Sunway City Iskandar Puteri. 

This, in addition to parent company Sunway’s planned hospital expansions in Penang, Kelantan and Iskandar Puteri, as well as a future education campus in Ipoh, positions Sunway Construction for continued growth.

RHB maintained a "buy" call on Suncon with a target price (TP) of RM5.50.

Seven analysts, including RHB, issued “buy” recommendations on Sunway Construction, while four have “hold” calls and one on “sell”, according to Bloomberg.

In a separate note, Kenanga Research noted Sunway Construction’s 9MFY2024 results came in below expectations, with core profit accounting for just 55% of its FY2024 forecast. 

This was largely due to the higher proportion of low-margin in-house projects during 3QFY2024, which led to a lower-than-expected profit margin of 4.0%. 

However, Kenanga anticipates a strong rebound in the fourth quarter and into FY2025, as DC projects gain momentum.

The research house also highlighted broader prospects for the construction sector, with major infrastructure projects such as the RM10 billion Bayan Lepas LRT, the Pan Borneo Sarawak & Sabah Highway and several flood mitigation initiatives expected to drive growth. 

The private sector construction market, particularly investments in semiconductor foundries and DCs, is also seen as a key contributor.

Besides that, Kenanga noted that Sunway Construction is eyeing further opportunities in DC construction, Penang LRT Mutiara Line work packages, and contracts from its parent and sister companies. 

As such, Kenanga maintained a “market perform” call on the stock, with a revised target price of RM4.52 — from RM4.71 — based on an unchanged 22x FY2025F price-to-earnings ratio. 

Sunway Construction is an investment holding company, which engages in the provision of design and construction services.  

It operates through the construction and precast concrete segments. Its construction segment comprises turnkey, construction related design and build, civil engineering, building works, geotechnical services and related products, hire of heavy machineries, mechanical and engineering works, transportation agent, and facade engineering and consultancy services.  

The precast concrete segment includes construction engineering, sub-contracting works for precast fabrication, manufacturing and distribution of precast components and building materials.

At the time of writing on Friday, Sunway Construction’s shares rose 18 sen or 4.1% to RM4.61 for a market capitalisation of RM5.96 billion. Year-to-date, the stock has gained 137.63%.