SUNCON: Construction Firm Posts Strong Earnings Beat Driven by Efficiency Gains

A leading construction firm reported impressive financial results for the financial year 2025 (FY25), with its core net profit of MYR425 million significantly exceeding both internal and street estimates by 123% and 124% respectively. This robust performance was primarily attributed to accelerated progress on existing data centre (DC) projects and effective cost management strategies.

Performance Highlights

The company’s construction arm saw a remarkable surge in Pre-Tax Profit (PBT) by 45% year-on-year in the fourth quarter of FY25 (4Q25), achieving a solid PBT margin of 16.5%, a substantial improvement from 7.9% in 4Q24. This margin recalibration reflects considerable cost savings and efficient execution, particularly within its ongoing DC projects, which currently constitute 41% of its order book, and the Rapid Transit System (RTS) Link project. A notable milestone was the 74% completion of the PSR-MNC DC project by end-4Q25, ahead of its 2Q27 deadline.

Order Book and Future Outlook

As of end-4Q25, the company’s construction order book stood at approximately MYR5.7 billion, with MYR5.2 billion in new orders secured throughout FY25. The firm currently has a substantial pipeline of active tenders worth MYR17.5 billion, with about 80% comprising high-value DC jobs, underscoring its strategic focus on this segment. Upcoming contract wins are anticipated from property projects linked to its parent company, such as Seremban Sentral, and potential expansion works for the JHB1X0 DC in Sedenak, which boasts a planned capacity of 200-300MW.

In light of the better-than-expected results, analysts have raised FY26 job replenishment assumptions to MYR6 billion from MYR5.5 billion, leading to a 13-14% increase in FY26-27F earnings forecasts. FY28F earnings have also been introduced, assuming MYR4.5 billion in new job wins. The revised target price has been set at MYR7.96, up from MYR7.35, incorporating a 4% ESG premium (previously 6%). Despite a slight adjustment in the ESG score from 3.3 to 3.2 due to less direct involvement in renewable energy projects compared to peers, the company’s robust performance in DC jobs justifies higher valuations given better margins and faster turnaround times. The investment bank maintains its BUY recommendation for the stock.

Key Catalysts and Risks

A significant rerating catalyst for the stock, beyond securing new DC contracts, would be successful bids for packages from the Penang Light Rail Transit project. The company’s last major infrastructure win was the RTS Link packages 1B and 5 in March 2023. However, a key downside risk remains lower-than-expected job wins.