Kenanga Research said SunCon has tendered for several DC projects.
PETALING JAYA: More imminent contract upsizing is in store for Sunway Construction Group Bhd
(SunCon), which delivered a strong set of results for the first quarter of financial year 2025 (1Q25) that topped expectations on a higher revenue mix from accelerated data centre (DC) project progress.
Kenanga Research in a note to clients said it remained bullish on robust DC job prospects to propel the group’s earnings further.
Hence, the brokerage firm has upgraded its financial year 2025 (FY25) to FY26 earnings forecasts by 8% to 12% to account for higher revenue assumptions of RM4.7bil to RM5bil, while raising the stock’s target price by 12% to RM5.94.
According to Kenanga Research, SunCon has tendered for several DC projects currently, including two projects from its existing two early contractor involvement projects.
Typically, DC building jobs can fetch a pre-tax profit margin at the higher-end of the range of 5% to 8% for building jobs, thereby improving its blended margin in the future.
Other projects in the pipeline are the Penang Light Rail Transit Package 2 and 3, beside in-house projects within the Sunway Group.
Kenanga Research likes SunCon for its strong job prospects of the sector with the imminent rollout of key public infrastructure projects and strong earnings visibility underpinned by RM6.65bil outstanding order book and recurring jobs from parent and sister companies.
The group also has extensive capabilities and track record in building, infrastructure, solar, mechanical, electrical and plumbing works, it added.
Kenanga Research, which has an “outperform call” on SunCon, said the risks include weak flows of construction jobs from public and private sectors, project cost overruns and liabilities arising from liquidated ascertained damages and rising cost of building materials.
Meanwhile, Hong Leong Investment Bank (HLIB) Research in a report said it expects stronger quarters ahead for SunCon. Year-to-date wins have hit RM2.2bil with more imminent contract upsizing.
“We raise our contract win assumption to RM6bil supported by RM16bil tenders,” it added.
According to HLIB Research, SunCon’s latest unbilled order book stands at RM6.6bil, this is inclusive of newly clinched DC contract from K2 (existing customer) worth RM393mil as well as variation orders worth RM167mil for JHB1X0.
HLIB Research has also lifted its win target for FY25 to RM6bil, considering SunCon’s positive progress in contract win execution.
“In our view, this is achievable considering imminent DC upsizing valued at RM1bil (by 2Q25) coupled with other high probability projects (internal and precast).
“This will incrementally add to secured year-to-date wins worth RM2.2bil,” it said, adding that “by our estimates, the above could result in RM4bil worth of jobs while the remaining RM2bil could come from new contracts riding on its sizeable RM16bil outstanding tenders (80% DCs)”.
HLIB Research anticipates the award decisions for new DC tenders towards the second-half of 2025.
The research house has maintained a “buy” call on the stock with a target price of RM5.36.
“In our view, SunCon’s premium valuation is justified, given the solid prospects and projected upshift in an already superior return on equity of about 27%,” it noted.
CGS International (CGSI) Research in a report said SunCon is still seeing a strong pipeline of DC tenders.
The brokerage firm noted there was no change in its RM4.5bil to RM6bil new order win target for FY25.
DC comprised 80% of SunCon’s RM15.9bil tender book as at May 2025 versus RM14bil in February 2025, where 70% of tenders are in the Klang Valley and 30% in Johor.
SunCon has tendered for seven DC jobs, of which four are for new clients, and a win from a new hyperscale customer would be positive for the diversification of its clientele.
Besides DCs, it has been invited to tender for industrial warehouses while the pipeline from parent company Sunway Bhd also looks promising with more hospital expansion and a new transit-oriented development project in Seremban.
CGSI Research has reiterated an “add” call with a target price of RM5.70.
“We like SunCon for its strong execution track record, first-mover advantage in DCs and three-year earnings per share compounded annual growth rate of 27% (FY24 to FY27),” it added.
The rerating catalysts for the stock include the award of government infrastructure and more DC projects.
