PETALING JAYA: Sunway Construction Group Bhd
(SunCon) could potentially see an earnings accretion of about 5% for the financial year ending Dec 31, 2024 (FY24) from works related to the 2.12 gigawatt (GW) Song Hau 2 thermal power plant (SH2P) project in Vietnam.
This estimate by RHB Research is based on assumptions that the project comes with a targeted duration of 57 months and a profit-after-tax margin of 7%, and if the financial close could be obtained by the end of this month.
The brokerage further noted that SunCon could see further earnings gains of 20% to 35% for FY25 and FY26 from the SH2P project based on the above assumptions.
“SunCon’s outstanding order book may also expand to a record high of RM12bil from RM6.3bil currently.
“Subsequently, we postulate that there could be an indicative upside of 15% to 20% to our current RM3.81 target price, if this project commences,” RHB Research said.
With a 55% stake in the joint venture involved in the engineering, procurement, construction, and commissioning (EPCC) works for SH2P, SunCon’s effective share in the US$2.4bil (RM11.2bil) job was estimated at around RM6bil, RHB Research noted.
It maintained its “buy” call on SunCon, with an unchanged target price of RM3.81 based on 20.5 times price-earnings (P/E) for FY25.
In its report yesterday, RHB Research said there was remarkable progress in the execution of SH2P project after some delays after Toyo Ventures Holdings Bhd (TVHB) accepted an equipment procurement facility of US$980mil for the project.
This facility could finance up to 70% of the invoice amount required to procure equipment related to EPCC works for SH2P, it added.
“While this does not constitute a financial close for SH2P, we view this as remarkable progress in the execution of the project, after some delays,” RHB Research said.
The SH2P project is owned by TVHB, and it would be operated via a build-operate-transfer model by its wholly owned subsidiary, Song Hau 2 Power Company.
In March 2023, SunCon, via a joint venture (JV) with Power Engineering Consulting Joint Stock Company 2 (PECC2), executed a formal contract agreement with the owner to formalise the terms and conditions regarding the EPCC job for SH2P with SunCon holding a 55% stake in the JV and PECC2 holding the remaining 45%.
RHB Research said it kept its earnings estimates for SunCon unchanged pending financial close of the SH2P project.
It noted that SunCon was currently trading at around 19 times FY25 P/E, a premium to the Bursa Malaysia Construction Index’s five-year mean of 13 times.
RHB Research said the premium was justified as SunCon’s return to equity was significantly higher than that of its peers.
The company also had the potential to benefit from the Johor-Singapore Special Economic Zone via Sunway City Iskandar Puteri, it added.
“Long-term catalysts would be Sunway’s hospital network expansion plan across Penang, Kelantan and Iskandar Puteri,” RHB Research said.
