KUALA LUMPUR: Analysts are optimistic Sunway Contruction Group Bhd's (SunCon) prospects in the data centre space are on the rise following the announcement of its latest construction deal in Selangor.
In an Exchange filing yesterday, SunCon announced it had secured a RM747.8mil building job for a data centre owned by a US-based multinational technology firm in Cyberjaya, boosting its year-to-date job wins to RM1.6bil.
Correspondingly, the construction group's outstanding order book was also lifted 12% to RM6.9bil.
With three data-centre contracts signed so far this year, RHB Research is optimistic over SunCon's ability to secure more data centre jobs moving forward.
"Recall that SunCon had secured MYR6.8mil worth of early contractor involvement (ECI) services via two packages for a data centre project early this year.
"SunCon may still have the chance to secure more packages from the same data centre project should it perform well for the ECI services, which we view as not be a problem with two ongoing data centre jobs (JHB1X0 and K2 data centre in Johor) in hand," it said in a company update.
However, as SunCon's job replenishment to-date remains within forecast, RHB is keeping its FY24 job win projection at RM3bil.
Its earnings estimates remained unchanged, and target price maintained at RM3.34.
RHB noted that it has not yet factored the Song Hau 2 power plant project, which may significantly boost its order book by about RM6bil and increase FY24 earnings by about 8% should it commence in 1H24.
Additionally, SunCon’s potential to mark its presence in Sarawak via Sunway’s two memoranda of understanding with Sarawak-based entities covering a total of 608 acres of land could also serve as a re-rating catalyst, it added.
Meanwhile, Kenanga Research said it is increasing its forecast on SunCon's job replenishment in FY24 to RM3.5bil from RM3bil previously, mirroring SunCon management's own job win target for the year, while standing pat on its FY25 job win projection of RM3.5bil.
Kenanga is also positive on the high earnings potential of the new project. "Typically, data centre building jobs can fetch an earnings before interest and taxes (Ebit) margin that is at the higher end of the range of 5% to 8% for building jobs.
"Our forecasts assume an average Ebit margin of 7.5%," it said.
The research firm, which has an "outperform" recommendation on SunCon, revised higher its net profit forecasts for FY24 and FY25 by 7% and 6% respectively.
Corresponding with the higher forecasts, Kenanga raised its target price on the stock to RM3.16 from RM3 previously, based on an unchanged 18x FY25F price-earnings ratio (PER), which is in-line with its valuation for big-cap construction companies.
