KUALA LUMPUR (March 6): Sunway Construction Group Bhd's (KL:SUNCON) winning of a Rapid Transit System transport-oriented development (RTS TOD) project in Bukit Chagar, Johor, marks a strategic shift away from its reliance on data centre (DC) projects for now.
In a note on Thursday, CGS International said that this new order win decreased SunCon’s exposure to DC projects from 55% of its RM7.5 billion order book in December 2024 to 44% as of March 2025.
However, the research house anticipates the percentage to rise again, with the potential expansion of two existing DC projects within SunCon's current order book, expected to be awarded by the first quarter of 2025.
During a recent conference call, SunCon indicated active participation in six tenders for new clients and potential upsizing opportunities for existing DC projects.
SunCon's new order win target for the financial year ending Dec 31, 2025 (FY2025) stays between RM4.5 billion and RM6 billion, encompassing DC projects, precast, and internal projects, but excluding government infrastructure projects.
CGS estimated that SunCon needs to secure half of this target, between RM2.25 billion and RM3 billion, by the first half of 2025 to ensure earnings continuity until FY2026, given its quarterly burn rate of RM1.2 billion to RM1.3 billion. The recent RM1.5 billion win is therefore considered timely.
CGS reiterated its 'add' rating, with a target price (TP) of RM5.70, citing SunCon's strong execution track record, first-mover advantage in the DC sector, and a projected three-year earnings per share (EPS) compound annual growth rate of 27% from FY2024 to FY2027.
According to Bloomberg, 14 research houses have recommended to 'buy' SunCon shares, one has a 'hold' rating, and two recommended to 'sell'.
In a separate note, RHB echoed similar sentiments, suggesting that SunCon has a strong possibility of securing future expansion works for the JHBX10 DC, a project for a client from a Tier-1 country.
RHB believes the total planned capacity for this DC is between 200MW and 300MW.
SunCon’s current RM3.9 billion in job awards for the JHBX10 DC is estimated to cover between 100MW and 150MW of capacity, according to RHB’s projections.
The research house maintained its earnings estimates, as the latest job win aligns with the FY2025 job replenishment assumption of RM5 billion.
The firm’s TP for SunCon remains unchanged at RM5.63, derived from a price-earnings (P/E) multiple of 27 times FY2025 EPS, with a 6% environmental, social, and governance premium.
This implies a P/E multiple of 22.8 times FY2026 EPS, consistent with comparable large-cap contractors with DC exposure.
RHB justified this valuation with SunCon’s position as a publicly listed contractor with approximately 50% of its order book from DCs, the highest among its peers.
This, combined with an above-industry return on equity and steady job prospects from parent company Sunway Bhd (KL:SUNWAY) with a significant presence in Ipoh and Johor, supports the firm’s valuation.
At the time of writing on Thursday, SunCon shares had risen by eight sen, or 1.9%, to RM4.32, raising the company's market capitalisation to RM5.58 billion.