HLIB Research
PP 9484/12/2012 (031413)
Results Review: 2QFY25
ckwoo@hlib.hongleong.com.my
(603) 2083 1718
Sunway Construction Group
Back in the running
SunCon reported 1HFY25 earnings of RM175.9m falling within our expectations. DPS of 7.25 sen was declared. Billings from its key DC projects accelerated further in the current quarter. Billings for 2H could slow slightly given accelerated execution for its key Johor project in 1H. YTD wins have hit RM3.8bn with more expected, backed by tenders worth RM14.8bn including >760MW of DCs. Recent MACC update is encouraging and positions the company firmly back in contention. No change to forecasts. Maintain BUY with unchanged TP of RM6.70.
Company description: SunCon is involved in construction and precast products.
Share price
RM
Our top picks in the construction sector are Sunway Construction Group (SunCon) and Gamuda. SunCon has a strong order book, supported by its extensive experience in data centre (DC) construction. The company’s current portfolio and successful track record of completing high-capacity DCs for key players like Yellowwood and K2 underscore its strong position. This is further reinforced by its participation in tenders for over 760MW of new DC projects, including liquid-cooled facilities. We are maintaining our BUY rating on SunCon with an unchanged target price of RM6.70. Our valuation is based on a 20.1x FY26 EPS, which represents a 0.5 standard deviation above its 3-year historical mean, plus an assumed net cash per share of RM0.22 based on AR24. We believe this premium is justified by its robust prospects, superior execution capabilities, and strong financial performance, which is expected to drive its ROE above 30%. Gamuda, on the other hand, is a leading infrastructure developer with a strong pipeline of projects. Its extensive experience in mega-infrastructure projects, particularly in rail and highway sectors, provides a solid foundation for growth. We maintain a BUY rating on Gamuda with a target price of RM6.00, derived from a 15x FY26 EPS, reflecting its dominant market position and consistent project delivery. The stock offers a compelling investment opportunity given its robust earnings growth and attractive dividend yield.
Key downside risks for the sector include increasing costs of raw materials and labour, potential restrictions on AI hardware exports that could affect data centre investments, and project execution delays.
SunCon’s reputation as a well-managed contractor. SunCon’s live tenders amounting to more than 760MW of DCs are very much active and we think such developments are positive to this end. To date, the company has completed 108MW of DC projects (including liquid cooled).
Strongest quarter ever.
SunCon reported 2QFY25 results with revenue of RM1.5bn (+5.5% QoQ, +126.8% YoY) and core PATAMI of RM93.5m (+13.5% QoQ, +148.3% YoY). This brings 1HFY25 core PATAMI to RM175.9, increasing by 165.1%. Results were within our and consensus expectations coming in at 58% of full year forecasts. Recall that we had previously revised earnings upwards by 10.5% post 1QFY25. We anticipate a slight tapering in 2H earnings due to project timing as its JHB1X0 project saw accelerated progress while newer secured DCs gestate in 2H. That said, we believe faster-than-expected completion of JHB1X0 project could lead to recognition of acceleration fees in FY26, in addition to reversal of over budgeted project costs.
Els.
2QFY25 core PATAMI is adjusted for: (i) FV loss on ESOS – RM7.3m, (ii) allowance for impairment of receivables – RM3.0m, (iii) decretion of financial liabilities – RM1.7m, and (iv) gain on PPE disposal – RM2.4m.
Dividends.
Second interim DPS of 7.25 sen going ex. on 10-Sept-25 (1HFY25: 12.25 sen; FY24: 8.5 sen). SunCon is accelerating return of capital to shareholders amid record earnings and ballooning cash pile.
QoQ.
Core PATAMI came in higher by 13.5% following sequential overall revenue growth of 5.5%. The driver for stronger QoQ performance came from the construction segment driven by accelerated progress from newer projects. On the other hand, precast PBT contribution was flat despite revenue growth of 41.8% due to finalisation account in 1Q.
YoY.
Core PATAMI surged by 148.3% mainly driven by strong construction segment performance as segmental revenue & PBT climbed by 139.9% and 158.8%. This was fuelled by accelerated execution across several data centre projects.
YTD.
Similar to the above, strong performance on a YTD basis came from quick execution of data centre projects – in particular, partial delivery of the JHB1X0 project.
Orderbook and net cash.
Latest unbilled orderbook stands at RM6.7bn (1.9x cover on FY24 revenue). This is inclusive of newly clinched DC contract from a US MNT (new customer) worth RM1.15bn as well as RM89m from two early site works (shell works). Meanwhile, net cash grew significantly QoQ from RM835m to RM1.2bn (or RM0.92 net cash per share) on accelerated receivables collection.
Investigation updates are encouraging.
SunCon announced that they have received a confirmation letter from MACC clarifying that the investigation is limited to SunCon’s ex. employee and remains an isolated case. Neither SunCon or any of its subsidiaries are under any investigation by MACC including Section 17A. To note, Section 17A carries potential liability to the corporate if internal controls are found to be inadequate that led to the individual’s actions – even in cases where the company did not benefit. We view this as a piece of good news where: (i) the company is unlikely to face financial liability from the fiasco and (ii) to a certain extent restores
HLIB Research I www.hlebroking.com
Forecast.
No change.
Maintain BUY, TP: RM6.70.
Maintain BUY with unchanged TP of RM6.70. Our TP is derived by pegging FY26 EPS to 20.1x based on +0.5SD over the 3 year range including an assumed net cash per share of RM0.22 (based on AR24). In our view, SunCon’s premium valuation is justified given solid prospects and projected upshift in already superior ROEs (>30%). We see reasons to remain optimistic of its prospects in the space, backed by widening gap in hyperscale DC execution track record – SunCon has now commissioned DCs for both K2 and Yellowwood ahead of time. Downside risks include: costs inflation, AI hardware restrictions & DC project execution.
Financial Forecast
All items in (RM m) unless otherwise stated
Balance Sheet
| FYE Dec (RM m) | FY23 | FY24 | FY25f | FY26f | FY27f |
|---|---|---|---|---|---|
| Cash | 470.4 | 1,015.8 | 1,822.2 | 2,014.8 | 2,273.2 |
| Receivables | 1,893.2 | 1,968.9 | 2,230.0 | 2,573.4 | 2,547.9 |
| Inventories | 46.4 | 43.3 | 59.3 | 68.4 | 67.7 |
| PPE | 98.0 | 85.1 | 83.1 | 79.6 | 74.7 |
| Others | 574.8 | 483.2 | 483.5 | 483.5 | 483.5 |
| Assets | 3,082.8 | 3,596.2 | 4,678.0 | 5,219.7 | 5,447.1 |
| Debts | 926.0 | 730.6 | 1,082.1 | 998.8 | 988.8 |
| Payables | 1,193.3 | 1,805.7 | 2,371.8 | 2,736.4 | 2,709.1 |
| Others | 71.6 | 121.4 | 121.4 | 121.4 | 121.4 |
| Liabilities | 2,190.8 | 2,657.7 | 3,575.3 | 3,856.6 | 3,819.3 |
| Shareholder’s equity | 820.2 | 877.9 | 1,015.5 | 1,265.3 | 1,519.1 |
| Minority interest | 71.8 | 60.6 | 87.2 | 97.8 | 108.7 |
| Equity | 892.0 | 938.5 | 1,102.7 | 1,363.1 | 1,627.7 |
Income Statement
| FYE Dec (RM m) | FY23 | FY24 | FY25f | FY26f | FY27f |
|---|---|---|---|---|---|
| Revenue | 2,671.2 | 3,521.7 | 5,087.1 | 5,870.6 | 5,812.5 |
| EBITDA | 251.8 | 271.1 | 437.0 | 555.1 | 546.8 |
| EBIT | 230.8 | 253.8 | 414.9 | 531.6 | 521.9 |
| Net finance income/ (cost) | (21.5) | 0.0 | 10.8 | 15.8 | 34.3 |
| Associates & JV | (14.1) | 0.3 | 0.3 | – | – |
| Profit before tax | 195.1 | 254.2 | 426.0 | 547.4 | 556.1 |
| Tax | (42.8) | (71.1) | (93.7) | (120.4) | (122.4) |
| Net profit | 152.3 | 183.0 | 332.4 | 427.0 | 433.8 |
| Minority interest | (0.7) | (10.1) | (26.6) | (10.7) | (10.8) |
| Core PATAMI | 151.6 | 172.9 | 305.8 | 416.3 | 422.9 |
| Exceptional items | (6.5) | 14.0 | – | – | – |
| Reported earnings | 145.1 | 186.9 | 305.8 | 416.3 | 422.9 |
Valuation & Ratios
| FYE Dec (RM m) | FY23 | FY24 | FY25f | FY26f | FY27f |
|---|---|---|---|---|---|
| Core EPS (sen) | 11.7 | 13.4 | 23.7 | 32.2 | 32.7 |
| P/E (x) | 49.9 | 43.7 | 24.7 | 18.2 | 17.9 |
| EV/EBITDA (x) | 31.1 | 28.9 | 17.9 | 14.1 | 14.3 |
| DPS (sen) | 6.0 | 6.0 | 13.0 | 12.9 | 13.1 |
| Dividend yield | 1.0% | 1.0% | 2.2% | 2.2% | 2.2% |
| BVPS (RM) | 0.6 | 0.7 | 0.8 | 1.0 | 1.2 |
| P/B (x) | 9.2 | 8.6 | 7.4 | 6.0 | 5.0 |
| EBITDA margin | 9.4% | 7.7% | 8.6% | 9.5% | 9.4% |
| EBIT margin | 8.6% | 7.2% | 8.2% | 9.1% | 9.0% |
| PBT margin | 7.3% | 7.2% | 8.4% | 9.3% | 9.6% |
| Net margin | 5.7% | 5.2% | 6.5% | 7.3% | 7.5% |
| ROE | 19.5% | 20.4% | 32.3% | 36.5% | 30.4% |
| ROA | 4.8% | 4.2% | 5.5% | 6.1% | 5.7% |
| Net gearing | 55.5% | CASH | CASH | CASH | CASH |
Cash Flow Statement
| FYE Dec (RM m) | FY23 | FY24 | FY25f | FY26f | FY27f |
|---|---|---|---|---|---|
| Profit before taxation | 195.1 | 254.2 | 426.0 | 547.4 | 556.1 |
| Depreciation & amortisation | 21.0 | 17.3 | 22.1 | 23.5 | 24.9 |
| Changes in working capital | (510.7) | 539.9 | 289.0 | 12.0 | (1.1) |
| Share of JV profits | 14.1 | (0.3) | (0.3) | – | – |
| Taxation | (42.8) | (71.1) | (93.7) | (120.4) | (122.4) |
| Others | 23.8 | (23.4) | – | – | – |
| Operating cash flow | (299.4) | 716.4 | 643.1 | 462.5 | 457.5 |
| Net capex | (1.1) | 32.5 | (20.0) | (20.0) | (20.0) |
| Others | (61.8) | 106.0 | – | – | – |
| Investing cash flow | (62.9) | 138.4 | (20.0) | (20.0) | (20.0) |
| Changes in borrowings | 445.2 | (195.3) | 351.5 | (83.3) | (10.0) |
| Issuance of shares | – | – | – | – | – |
| Dividends paid | (77.3) | (77.8) | (168.2) | (166.5) | (169.2) |
| Others | (30.5) | (30.3) | – | – | – |
| Financing cash flow | 337.4 | (303.4) | 183.3 | (249.9) | (179.1) |
| Net cash flow | (24.8) | 551.5 | 806.4 | 192.6 | 258.4 |
| Forex | – | – | – | – | – |
| Others | 3.6 | (6.1) | – | – | – |
| Beginning cash | 491.6 | 470.4 | 1,015.8 | 1,822.2 | 2,014.8 |
| Ending cash | 470.4 | 1,015.8 | 1,822.2 | 2,014.8 | 2,273.2 |
Assumptions
| FYE Dec (RM m) | FY23 | FY24 | FY25f | FY26f | FY27f |
|---|---|---|---|---|---|
| Construction | 2,235 | 3,778 | 6,700 | 4,800 | 4,800 |
| Precast | 270 | 443 | 300 | 400 | 500 |
| Total new job wins | 2,300 | 4,221 | 7,000 | 5,200 | 5,300 |
Figure #1 Quarterly results comparison
| FYE Dec (RM m) | 2QFY24 | 1QFY25 | 2QFY25 | QoQ (%) | YoY (%) | 1HFY24 | 1HFY25 | YoY (%) |
|---|---|---|---|---|---|---|---|---|
| Revenue | 651.2 | 1,400.5 | 1,476.9 | 5.5 | 126.8 | 1,256.0 | 2,877.4 | 129.1 |
| EBIT | 51.5 | 116.2 | 122.4 | 5.4 | 138.0 | 100.9 | 238.6 | 136.6 |
| Finance income | 15.3 | 14.3 | 19.7 | 38.3 | 28.6 | 20.1 | 34.0 | 69.4 |
| Finance cost | (17.8) | (12.9) | (12.8) | (0.8) | (28.2) | (34.0) | (25.7) | (24.5) |
| PBT | 49.0 | 119.9 | 132.3 | 10.3 | 169.9 | 87.0 | 252.2 | 190.0 |
| PAT | 36.6 | 92.4 | 103.9 | 12.4 | 184.0 | 65.6 | 196.3 | 199.3 |
| Core PATMI | 37.7 | 82.4 | 93.5 | 13.5 | 148.3 | 66.4 | 175.9 | 165.1 |
| Reported PATMI | 38.9 | 75.7 | 83.9 | 10.8 | 115.8 | 71.3 | 159.6 | 123.9 |
| Core EPS (sen) | 2.9 | 6.4 | 7.2 | 13.5 | 148.3 | 5.1 | 13.6 | 165.1 |
| EBIT margin (%) | 7.9 | 8.3 | 8.3 | 8.0 | 8.3 | |||
| PBT margin (%) | 7.5 | 8.6 | 9.0 | 6.9 | 8.8 | |||
| PATMI margin (%) | 5.8 | 5.9 | 6.3 | 5.3 | 6.1 | |||
HLIB Research, Bursa
HLIB Research I www.hlebroking.com
Hong Leong Investment Bank Berhad (10209-W)
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