PETALING JAYA: Nestcon Bhd
has a strong possibility of increasing earnings on the back of a number of reasons.
Among them include Nestcon’s evolution into an integrated contractor with exposure across renewable energy, residential and industrial developments, and civil infrastructure work.
TA Research said the diversified business model will enable the group to capitalise on multiple structural growth themes within the construction sector, all while reducing reliance on a single market.
Catalysts include the rollout of projects under the 13th Malaysia Plan (13MP), resilient residential construction activities and the nation’s energy transition initiatives.
Looking at the allocation of RM86bil under the 13MP, there is a 70% subcontracting ratio from main contractors and a conservative 25% win rate.
This could translate into RM15mil of potential infrastructure job replenishment opportunities for Nestcon, TA Research said.
“The group’s broad execution capabilities also enhance its competitiveness in bidding for a wider spectrum of projects, allowing it to pursue opportunities across both the private and public sectors.
“We believe Nestcon is well positioned to secure a larger share of upcoming construction opportunities,” the research house said.
The group has also ventured into property development, after acquiring commercial land parcels in Johor for RM95mil.
The development in Johor will be in two phases – the first should be completed by the second quarter of 2027.
TA Research said earnings contribution should be visible from financial year 2028 (FY28) onwards.
“We believe this sizeable development pipeline will establish a new long-term earnings pillar for the group, enhancing earnings visibility while providing meaningful margin expansion and reducing its reliance on traditional third-party construction contracts.”
According to the research house, diversification has helped Nestcon move up the property value chain. “Unlike its core construction business which operates on thinner margins, the property segment offers superior profitability through the capture of development margins in addition to construction profits.
“With the integration of construction and property development, Nestcon stands to benefit from improved cost efficiencies, better project execution and enhanced margin capture across the entire development cycle,” TA Research explained.
On earnings, TA Research projects a yearly revenue growth from RM723.8mil in FY25 to RM779.5mil in FY26, RM983.7mil for FY27 and RM1.3bil for FY28.
This topline expansion is expected to drive a substantial core earnings growth to RM21.1mil for FY26, RM32.1mil for FY27 and RM48.4mil for FY28.
As for Nestcon’s order book, it is healthy and stands at RM1.73bil, equivalent to 2.4 times FY25 revenue, providing healthy earnings visibility over the next two to three years. On a year-to-date basis, Nestcon has secured about RM516.9mil new contracts – 61.4% of residential construction jobs and 38.6% of infrastructure jobs.
“Looking ahead, we remain constructive on the group’s replenishment prospects, supported by a healthy RM4.2bil active tender book spanning both building and infrastructure projects.
“Assuming a conservative 25% tender conversion rate, this translates into approximately RM1bil of potential new contract wins, ensuring solid order book replenishment visibility.”
With that, TA Research said it will initiate coverage on Nestcon Bhd with a “buy” recommendation and a target price of 62 sen.
On risks, TA Research said the replenishment of jobs could impact Nestcon’s earnings, depending on how fast the group secures contracts.
