PETALING JAYA: The construction of a fully-automated precast plant in Singapore is positive for Sunway Construction Group (SCG) as it will allow the Group to maintain its precast margins amid rising labour costs.
Maybank IB Research, which is maintaining a hold on the stock with a target price of RM2.30, said on Monday a fully-automated precast plant would allow SCG to reduce its reliance on foreign workers while improving productivity.
“We believe this to be positive in the long term, allowing SCG to remain competitive while maintaining its precast margins in an environment of rising labour costs.
“We keep our earnings unchanged for now as the precast plant is only expected to be operational in the second half of 2021,’’ it added.
Sunway Concrete Products (S) Pte Ltd (SCPS) and its joint venture partner have recently won a bid to lease a parcel of land for S$25.7mil (RM77.1mil).
The aim of the 30-year lease is for SCPS and its joint venture partner HL Building Materials Pte Ltd to develop an integrated construction and prefabrication hub from the Building and Construction Authority of Singapore.
SCPS is an indirect wholly-owned subsidiary of SCG or SunCon. HL Building Materials is a subsidiary of Hong Leong Asia Ltd. The site for the location of the plant is at Pulau Punggol Barat.
Upon completion, the fully mechanized,integrated precast plant is expected to have annual production capacity of 100,000 m 3 of concrete products, a 64% increase over SCG’s current capacity of 156,600 m3 per annum from its existing plants in Senai and Iskandar in Johor. SCG’s precast contribution to earnings could potentially double with the new plant.
The precast business reported a profit before tax (PBT) contribution of RM28mil to the group in financial year 2017 (16% of group PBT).
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