SSB8: Investment Bank Initiates Coverage with ‘Buy’ Rating, Citing Strategic Growth and Data Centre Potential

AmInvestment Bank has initiated coverage on a prominent construction management company, issuing a “BUY” rating with a target price (TP) of RM0.80. This valuation implies a significant 39% potential upside from its last traded price of RM0.58, underpinned by a compelling growth trajectory and strategic market positioning.

Performance and Valuation Highlights

The target price is derived from a 16x CY27F price-to-earnings (PE) multiple, representing a +1 standard deviation above the 5-year average of the Bursa Malaysia Construction Index (KLCON). This premium is justified by the company’s superior growth profile, robust revenue cover, and consistently high Return on Equity (ROE).

The investment bank forecasts impressive earnings growth, projecting an 82% year-on-year increase in earnings, which is more than triple the sector average of 26%. Group earnings are expected to achieve a 3-year compound annual growth rate (CAGR) of 49% from FY25 onwards. The company’s asset-light model has also driven a strong ROE of 36%, double that of its peers, highlighting efficient capital utilization. Furthermore, the net cash position is anticipated to exceed RM200mil by FY28, providing substantial headroom for future expansion without relying on debt.

Key Growth Drivers

A primary catalyst for the positive outlook is the strategic pivot into high-margin mechanical and electrical (M&E) work for data centres, facilitated by its 51%-owned subsidiary, SJEE Engineering Sdn. Bhd. SJEE, a Class A licensed electrical contractor, has a strong track record, having completed six hyperscale data centre projects. This segment currently boasts an M&E orderbook exceeding RM200mil, with annual replenishment potential of RM200-300mil at an 18% net margin. It is projected to contribute 20% of the group’s profit after tax and minority interests (PATMI) and grow by 15-20% annually, leveraging Malaysia’s burgeoning data centre market.

Complementing this, the company benefits from a steady, recurring orderbook from related-party developers, Radium and Platinum Victory, for whom it acts as a “go-to contractor.” Its construction orderbook of RM1.2bil provides earnings visibility through FY29, representing a robust 7.1x cover over construction revenue—more than double that of its peers. This pipeline is expected to be annually replenished by RM600-800mil as these developers expand their footprint in Kuala Lumpur. The company has consistently delivered strong operating and net margins of approximately 30% and 16%, respectively, nearly three times the sector average.

The asset-light business model further bolsters profitability and scalability. By outsourcing most site works to trusted subcontractors while retaining control over design and project management, the company can scale operations rapidly without heavy capital expenditure. This approach maintains a lean balance sheet with near-zero gearing and facilitates fast conversion of project wins into cash.

Outlook and Risks

The outlook remains strong, driven by continued expansion in the M&E/data centre segment and a robust construction orderbook. The company’s enhanced cash conversion cycle and normalization of receivables by 1HY26 are expected to further strengthen its financial position. However, the report also acknowledges several risks, including a concentration risk due to reliance on related-party projects and the significant concentration of the orderbook in a single project (PV22 Residences). Other considerations include potential execution risks from reliance on subcontractors, and geopolitical or infrastructure risks associated with data centre development, such as foreign investment fluctuations and limitations in local resources. Despite these, the overall structural growth in both the construction and data centre sectors, coupled with its experienced management team, is expected to mitigate these challenges.