PETALING JAYA: Phillip Capital Research says Malaysia’s high-tech construction and project management-based firm Southern Score Builders Bhd
(SSB) is due to face near-term headwinds, following the recent hike in diesel prices.
The research house said the 96% surge in diesel prices since the onset of the West Asia conflict will likely result in higher cost margins on the company’s ongoing projects.
Phillip Capital explained that as diesel is an operating expense, it is therefore not subjected to contractual pass-through and is fully borne by the group.
However, the research house said cost pressures are manageable, noting that the firm’s future contracts will incorporate a 10% to 15% cost buffer to account for the elevated diesel price environment.
It said the cost buffer should mitigate margin compression on SSB’s upcoming project awards.
Additionally, Phillip Capital highlighted that the recent weakening of the US dollar should cushion SSB’s input costs in ringgit terms.
Phillip Capital further pointed out that SSB’s RM1mil of raw materials procured were US dollar-denominated.
Amid a highly volatile environment, the group has also faced short-term execution disruption in its recent financial quarter following a nationwide disruption in cement and aggregates supply.
“We gather that project execution has been disrupted in the fourth quarter of its financial year 2025 (FY25) due to tightening cement supply, leading to delays in construction progress and timing of billing recognition,” the research house further said.
It added that the disruption was driven by tighter haulage compliance requirements which constrained transport capacity across the supply chain, leading to material shortages at batching plants and delivery delays to construction sites.
Haulage and quarry product prices surged by 15% to 40% during the period, which further weighed on the firm’s cost pressures, the research house said.
Accordingly, Phillip Capital lowered its FY26 to FY27 earnings forecasts for SSB based on the ripple effect of a permanent timing shift in its revenue recognition.
“While supply conditions have gradually normalised, the delayed progress has resulted in an overall pushback in project timelines, with the revenue impact expected to spill over into FY27 rather than be fully recovered within FY26,” it said.
The research house subsequently lowered its target price on the company to 74 sen from 75 sen a share, based on an unchanged 18 times FY27 forecast price earnings multiple.
Despite the sector’s aggregate supply disruption risks, Phillip Capital remains upbeat on SSB’s longer-term outlook.
It said while near-term order wins are slightly softer due to residential slowdown, SSB maintains clear pipeline visibility with stronger rebound prospects underpinned by data centre (DC) projects in FY27 and up to FY28.
SSB has maintained steady DC projects across Klang Valley and Johor through its 51%-owned subsidiary SJEE Engineering Sdn Bhd alongside its core residential, industrial and medical segments, the research house said.
“The group’s tender book stands at RM1.4bil, reflecting a well-diversified pipeline across government-related projects (38%), residential (38%) and DCs (24%).
“With RM425mil of new contracts secured, replenishment is tracking broadly in line with expectations,” it said.
“Among its ongoing jobs, the Radium Hospital is currently at the piling stage, with subsequent phases expected to be awarded by mid-2026,” it added.
Notably, the recent acquisition of Nova Pharma Solutions Bhd had strengthened SSB’s bid for the RM180mil Radium Hospital project which it is expected to secure on a full turnkey basis, according to the research house.
It said the project could span three years, supporting SSB’s earnings visibility through FY29 as a medium-term contributor, while enhancing the group’s diversification portfolio with more stable, longer-duration and less competitive medical segment work.
SSB is also expanding its DC pipeline with a RM900mil project from a US hyperscaler in Port Dickson, with tenders expected in its third quarter.
Phillip Capital said the proposed Port Dickson DC by a US hyperscaler could be a potential new client for the group and SJEE.
“A successful conversion – even on a partial basis – would drive a substantial re-rating of SJEE’s executable pipeline, which underscores our view that SSB’s DC-driven earnings upcycle remains firmly on track,” it said.
Moreover, an existing SJEE client is moving ahead with a RM150mil Phase 2 expansion, with tenders expected after current civil and structural works are completed, while a similarly sized Phase 3 is also being discussed.
