SSB8: Construction Firm Set for Robust Growth on Strategic Strengths, ‘Buy’ Rating Initiated

Analysts have initiated coverage on a prominent construction firm, assigning a “Buy” recommendation and a target price of RM0.80, implying a potential total upside of 34.9% from its last traded price of RM0.59. The positive outlook is underpinned by strong projected earnings growth, a robust unbilled order book, strategic diversification into high-growth sectors, and effective cost management.

Performance and Growth Drivers

The firm is expected to demonstrate significant financial expansion, with core earnings projected to grow by 88.3%, 30.7%, and 22.4% for FY26, FY27, and FY28, respectively. This growth follows an impressive revenue trajectory, which saw earnings jump from RM97.9 million in FY23 to RM221.1 million in FY25, driven by ramped-up construction activities and the inclusion of its recently acquired mechanical and electrical (M&E) engineering subsidiary.

Key to this performance are strategic alliances with property developers Platinum Victory (PV) and Radium. These synergistic relationships ensure a stable pipeline of new job wins, with analysts assuming RM1.0 billion in new order book replenishment annually for FY26-28F. Such collaborations facilitate cost efficiencies through favourable contract terms, protecting margins against material cost fluctuations, and ensuring prompt payments that reduce reliance on debt. The company also adopts an asset-light model, outsourcing construction work and undertaking bulk procurement to maintain a lean balance sheet.

Strategic Diversification into High-Growth Sectors

A significant growth catalyst is the acquisition of a 51% stake in SJEE Engineering Sdn Bhd (SJEE) in January 2025. This strategic move diversifies the firm into the high-growth M&E space, particularly the booming data centre construction segment. SJEE, a CIDB Grade 7 and Energy Commission Class A-licensed contractor with over 30 years of expertise, brings technical know-how, regulatory licenses, and client relationships, enabling participation in larger, design-and-build tenders with improved margin potential.

Malaysia is rapidly emerging as a regional data centre hub, with an estimated 3.45 GW of data centres in the pipeline, translating into substantial construction opportunities. SJEE’s strong track record in M&E projects, including those for data centres, positions the group favorably to capture a significant share of this expanding market. SJEE’s current tender order book stands at RM384 million, predominantly comprising DC-related M&E jobs.

Financial Health and Outlook

The firm has demonstrated robust double-digit net core margins, ranging from 17.7% to 22.7% over the past three financial years, outperforming several peers. While net margins are anticipated to normalize to 12.1%-13.2% in FY26-28F due to scaling operations and the integration of M&E projects with inherently lower margins, these will remain strong, supported by sustained cost efficiencies.

As of September 2025, the outstanding order book stood at a substantial RM1.46 billion, providing 2.5 times cover for its FY26 revenue forecast. This strong order book, primarily derived from PV and Radium, reinforces the stability and predictability of future revenue streams.

While the firm currently lacks a formal dividend policy, it has consistently declared a dividend per share of 1 sen since FY23. Analysts project an increase to 1.5 sen in FY26F and 2 sen in FY27-28F, implying attractive dividend yields of 2.6%-3.4%.

Investment Recommendation

Given its solid fundamentals, strong earnings visibility, strategic diversification into high-growth M&E and data centre markets, and robust order book, the firm presents a compelling investment opportunity. The “Buy” recommendation is reinforced by an attractive total return potential, making it a favorable pick in the construction sector.