PETALING JAYA: There could be some near-term reputational damage to Sunway Construction Group Bhd
(SunCon) in relation to the investigation of an employee connected to a Johor data centre (DC) project tender by the Malaysian Anti-Corruption Commission (MACC), but the focus will remain on whether the company can continue to win more DC projects.
Analysts covering SunCon said while the case would run its course and be eventually settled, the company, which has a sterling reputation for corporate disclosures, must, for now, bear the brunt of reputational damage.
Several analysts have also revised the company’s environmental, social and governance (ESG) premium tagged to its share price, which suffered a sell-down on Monday before recovering some ground.
Maybank Investment Bank Research has maintained a “buy” call on the stock with a target price (TP) of RM6.72 and an earnings estimate premised on annual job wins of RM7bil.
It believes there should not be too many negative repercussions over time once the case has been settled, though there may be near-term distractions.
Following news of the MACC investigation, SunCon moved swiftly to manage the situation, including a briefing with analysts. However, several analysts noted that the investigation has uncovered some operational weaknesses.
TA Research, which maintained a “sell” call on the stock, has revised the company’s ESG rating to three stars from four, impacting the TP, which has been lowered to RM5.59 from RM5.76 with unchanged earnings estimates.
“We are undoubtedly surprised by the development, particularly given SunCon’s strong reputation for corporate governance and its established suite of compliance policies,” it said, adding that while the reputational damage cannot be quantified at this juncture, there seems to be no systemic failure, but new clients may impose more stringent due diligence or require additional assurance on project execution standards.
CGS International Research has maintained a “hold” call on the stock, noting that the valuation of 22 times the financial year ending Dec 31, 2026 price-to-earnings “is not compelling at a premium to the sector average of 14 times, with the MACC inquiry likely to be a share price overhang until it concludes”.
It pointed out that investors ascribed a premium to the return-on-equity DC exposure for more meaningful earnings growth beyond FY25.
The TP was lowered to RM5.50 from RM5.90. SunCon’s net profit for the first quarter of financial year ended March 31, 2025 (1Q25) surged to RM75.72mil, up from RM32.40mil in the same period last year.
Revenue climbed 132% to RM1.40bil compared with RM604.80mil previously, underpinned by robust performance from the construction segment.
In a statement on its first quarter financial performance announced in May, the company said its construction segment delivered a remarkable improvement in performance, with revenue rising 152% from RM543.6mil in 1Q24 to RM1.37bil in 1Q25.
