SUNCON: Construction Group’s Earnings Outperform on Cost Efficiency and Project Execution, Target Price Raised

A leading investment bank has upgraded its target price for a construction group following its stellar financial performance in FY25, which significantly surpassed both the bank’s and consensus estimates. The outperformance was largely attributed to accelerated progress billings from key data centre (DC) and RTS projects, alongside robust contributions from its precast segment, demonstrating strong operational efficiency and project delivery capabilities.

Performance Review

The construction group reported core earnings of RM420.7mn for FY25, exceeding TA Securities’ full-year forecast by 121.6% and consensus estimates by 122.9%. Group revenue witnessed a sharp increase of 51.6% year-on-year to RM5.3bn, driven by a higher order book burn rate across both the construction and precast divisions. Adjusted core earnings consequently surged by an impressive 152.6% year-on-year from RM166.6mn in FY24.

Profit Before Tax (PBT) margin expanded by 210 basis points to 9.8%, up from 7.8% in the previous year. This margin improvement was primarily supported by cost savings achieved through the accelerated execution of selected DC projects, higher interest income (+43.8%), and reduced finance costs (-28.1%).

On a quarter-on-quarter basis, revenue declined by 29.7% due to the completion of several major projects in the preceding quarter and the early-stage progress of newly commenced jobs. Despite this, PBT rose 28.0% quarter-on-quarter, bolstered by lower interest expense (-44.5%) and higher operating margin (+600bps).

The group also declared a fourth interim dividend of 9.0sen/share, bringing the total FY25 dividend payout to 50.5sen/share, which translates into an attractive dividend yield of 8.0% based on yesterday’s closing price of RM6.31.

Future Outlook and Strategic Initiatives

The group’s future earnings visibility remains strong, underpinned by a total outstanding unbilled order book of RM5.7bn, which provides 1.1x cover for its FY25 revenue, offering earnings visibility for the next three years. In FY25, the company secured RM5.2bn in new order book.

Management has set an internal order book replenishment target of RM6.0bn for FY26, which the investment bank views as achievable. This confidence stems from potential in-house construction awards from its parent company’s property development pipeline, with RM4.0bn of Gross Development Value (GDV) launches targeted for CY26, potentially translating into approximately RM2.0bn in new construction job opportunities.

Furthermore, the company’s ongoing tender book for DC projects exceeds 700MW across Klang Valley and Johor. Based on conservative estimates, this pipeline could translate into potential DC construction opportunities ranging from RM6.3bn to RM7.4bn.

The investment bank has revised its PAT margin assumption upward to 7.2% (from 6.0% previously) for FY26-27, driven by accelerating contributions from higher-margin DC jobs and continued cost-saving from improved execution efficiency. The FY27 new order book replenishment assumption has also been lifted to RM5.5bn (from RM5.0bn) to account for an expanding DC tender pipeline and a growing pipeline of in-house property projects. These revisions have led to a collective increase in earnings forecasts by 5.8% and 8.9% for FY26 and FY27, respectively. An FY28 earnings forecast has also been introduced, assuming new job wins of RM6.0bn and a PAT margin of 7.2%, translating into approximately 3.0% year-on-year earnings growth.

Valuation and Recommendation

Based on rolling forward its base year valuation to CY27 and incorporating the updated earnings forecasts, TA Securities has raised its target price to RM7.28 (previously RM6.31). This valuation is based on 22x CY27 earnings, with a 3% ESG premium consistent with its 4-star ESG rating. The investment bank maintains its BUY recommendation, favoring the group for its strong position in mega infrastructure projects (such as Johor EART and Penang LRT Segment 2) and its leading role in securing new contracts within the thriving advanced technology park (ATP) industry.

Key Risks

Downside risks include a slower-than-expected new order book win, delays in large-scale infrastructure job roll-outs, and weaker-than-expected property sales.