PETALING JAYA: CGS International (CGSI) Research favours Sunway Construction Group Bhd
(SunCon) for its strong execution track record and first-mover advantage in data centres (DCs).
The research house said the key takeaway from a conference call with Suncon management was its continued positive outlook on DC contracts.
It shared that there are six tenders for new clients and upsizing opportunities for present DC projects despite concerns over the United States artificial intelligence (AI) Diffusion Framework.
“This is reflected in its RM4.5bil to RM6bil new order win target for financial year 2025 (FY25) (FY24: RM4.2bil), Suncon management said, noting that this estimate factors in DC projects, precast and internal projects but excludes government infrastructure.
“We estimate that SunCon will need to clinch half of this target by first half of 2025 to ensure there is earnings continuity in FY26, given its burn rate RM1.2bil to RM1.3bil per quarter and present order book of RM5.8bil,” CGSI Research explained.
The research house expected that in terms of nearer-term DC upsizing wins, this will likely be for the Early Contractor Involvement for a US multinational corporation and K2 DCs by the first quarter of the year (1Q25).
As for the largest DC project in its order book, the Sedenak DC project for Yellowwood Properties Sdn Bhd, CGSI believed the upsizing will only take place in the later part of the year.
“SunCon will likely need to substantially complete the existing DC first, which is slated for 1Q26. Given this is a colocation DC, the end-client Yellowwood Properties is able to work with multiple clients which are less affected by the AI Diffusion Framework,” it added.
However, the research house said SunCon was also seeing the competitive landscape for DCs increasing, with more local contractors present in tenders.
It added that SunCon will be more selective in bidding for DC projects given that the pipeline is still strong.
Other than DC projects, the research house said SunCon is targeting RM2bil worth of projects from its parent company Sunway Bhd in FY25 giving it a ready pipeline of projects. It added that the projects will come from its recent transit oriented development work secured by Sunway adjacent to the rapid transit system in Johor, Sunway’s joint venture with Equalbase for a free commercial zone in Pendas, Johor and other mixed development and hospital projects.
The research house highlighted that revenue contribution from internal projects awarded by Sunway has fallen to 25% to 39% for FY23 to FY24, from 33% to 40% for FY19 to FY22, given the DC project awards.
“Management said SunCon is not just focusing on projects in the DC space but will actively tender for other government infrastructure projects, such as Penang Airport (package 3) and Penang light rail transit.
“It may also bid for the Johor autonomous rapid transit, depending on the funding structure of the project,” it added.
The research house, which maintained its “add” call with a target price of RM5.70 a share, also liked the counter for its three-year earnings per share compound annual growth rate of 27% for FY24 to FY27.
