Sunway Construction's positive outlook remains intact with the company's robust performance underpinned by a substantial increase in its tender book, now at RM13.7 billion, up from RM9.4 billion in the previous quarter. This growth is driven primarily by data centre (DC) projects, which are expected to significantly boost the company's earnings.

Analysts have kept their BUY recommendation and target price of RM5.50, anticipating a strong performance in FY25. This optimism is based on the projected 53% growth in earnings, driven by substantial data centre contracts. The Malaysian data centre market is expected to see around 766.9 MW of IT supply, with an estimated construction value of RM29-34 billion. Sunway Construction is well-positioned to capitalise on this with its expanding tender book, which includes opportunities in the semiconductor sector as well.

The company's strategic focus remains on high-margin data centre and semiconductor projects, rather than warehousing facilities. These projects offer better margins compared to the company's historical average profit before tax (PBT) margin of 5-8%. The firm aims to enhance its reputation with major multinational clients, particularly in the technology sector, to secure further contracts for data centre expansions.

Despite a significant increase in its job portfolio, the construction company does not foresee labour supply issues. The company expects to utilise manpower from upcoming project completions, such as Sunway Belfield and Sunway Medical Centre Ipoh, for new data centre contracts. This strategic approach provides Sunway Construction with the capacity to take on approximately RM1.2 billion in new contracts.

No adjustments have been made to the earnings estimates, but there are potential upside risks, especially if billings progress faster than anticipated. The JHB1X0 data centre project in Sedenak Tech Park, valued at RM3.2 billion and scheduled for completion by 1Q26, is a significant contributor to this outlook. The target price of RM5.50 reflects the company's strong positioning in industrial sectors and includes a 6% ESG premium.

Trading at a 21.7x FY25F P/E ratio, Sunway Construction is currently valued higher than the Bursa Malaysia Construction Index's 10-year average of 13x P/E. This premium is justified by the company's superior return on equity (ROE) and the potential for securing further high-value contracts in both the semiconductor and infrastructure sectors, including the Penang Light Rail Transit project.

Source: RHB
Title: No Slowdown In Scouting For DC Jobs; Stay BUY