SUNCON: Strategic Focus on Data Centre Projects to Drive Future Growth

Recent ground checks and operational insights into a prominent construction firm highlight a strategic pivot towards high-growth data centre projects, expected to bolster its future earnings, despite current operational headwinds in its precast segment. The company is actively positioning itself for substantial growth, driven by a robust order book and anticipated improvements in key operational metrics.

Performance Review and Operational Challenges

The company’s integrated construction and prefabrication hub (ICPH) in Singapore, a joint venture with a significant annual production capacity, currently operates at a softer utilisation rate of 30-40% in the first half of 2025. This under-utilisation is primarily attributed to resource bottlenecks experienced by main contractors of Singapore’s Housing Development Board (HDB), leading to delays in project delivery. The HDB market has seen a surge in build-to-order (BTO) flat launches between 2021-2025 to meet pent-up demand, creating capacity constraints for main contractors.

Future Outlook and Growth Drivers

Looking ahead, HDB expects new flat launches to normalise to an average of 15-16k units in 2026-27, which is expected to ease delivery bottlenecks and potentially improve the precast plant’s utilisation level to 60-70%. This normalisation is crucial for quicker recognition of the company’s RM867 million precast order book in 2026-27E. However, the precast segment is forecast to contribute a relatively modest 5% to overall revenue due to the group’s sizable revenue base.

The primary growth engine is the core construction segment, significantly underpinned by a robust pipeline of data centre projects. These five ongoing data centre projects collectively account for 45% of the company’s substantial RM6.7 billion order book. Furthermore, data centre projects are expected to represent 90% of its RM14.2 billion tender book, indicating a strong focus and future reliance on this high-value segment. The company has secured RM3.8 billion in new contracts year-to-date and is on track to meet its internal order book replenishment target of RM4.5-6 billion for 2025.

Analysts project a commendable 3-year revenue Compound Annual Growth Rate (CAGR) of 15% and a net profit CAGR of 26% over 2025-2027E, predominantly driven by the robust data centre project pipeline.

Investment Bank’s View

PhillipCapital maintains a “HOLD” rating on the stock with an unchanged 12-month target price of RM5.50. This valuation is based on a target 22x PE multiple on 2026E EPS. The stock is currently trading at 25x forward PE, which is considered fair relative to its 5-year mean (+2 standard deviations). Key risks to this outlook include potential delays in contract awards, variations in order replenishment, slower order book recognition, and margin pressures.