Background

SUNCON conducted an analyst briefing yesterday, following the Malaysian Anti-Corruption Commission’s (MACC) investigation into alleged graft involving a RM180mn procurement contract related to a tender for the data centre project in Johor. A company contract manager was recently detained for suspected bribery in the tender process. MACC also seized RM7.5mn in cash, luxury watches, gold coins, and jewellery from the manager’s residence. To note, there are two unnamed companies under scrutiny for allegedly securing contracts through illicit payments.

Briefing Highlights

The group firmly asserted that the alleged bribery case is isolated to a specific individual and certain external subcontractors, with no direct implication on SUNCON itself. Management reiterated its zero-tolerance policy towards corruption and affirmed its strict adherence to compliance protocols designed to uphold business integrity.

SUNCON highlighted that its internal compliance framework—certified by reputable third-party auditors with top-tier assessments over the past year—includes mandatory e-bidding procedures, under which contracts are awarded solely to the lowest bidder. The group expressed confidence that these mechanisms are robust and consistently enforced under all circumstances, bolstered by its established ABMS audit process and strong corporate governance.

Following an internal review, the company has terminated the contract manager involved—an employee of over a decade—and is now reassessing all past projects linked to him. Concurrently, SUNCON is proactively engaging with current clients and potential prospects to mitigate any reputational or operational risks that may affect ongoing contracts or future tender prospects. Management remains optimistic that existing projects will proceed uninterrupted and current subcontractor capacity remains sufficient to meet operational requirements.

Additionally, SUNCON is consulting legal advisors to determine the appropriate course of action against implicated subcontractors and external parties.

Our View

We are undoubtedly surprised by the development, particularly given SUNCON’s strong reputation for corporate governance and its established suite of compliance policies. That said, we are somewhat reassured by the fact that the case appears to involve misconduct in a personal capacity, rather than systemic failure, and we believe it is unlikely to compromise SUNCON’s relationships with existing clients.

That said, the reputational damage inflicted on the group is not quantifiable at this juncture, and the negative news flow may weigh on its near-term ability to secure new contracts. In our view, this uncertainty is likely to persist until the investigation is concluded. Furthermore, we do not rule out the possibility that new clients may impose more stringent due diligence or require additional assurance on project execution standards—potentially leading to delays in new project awards. Against this backdrop, we remain cautious on the Group’s near-term job replenishment prospects.

Impact

While there are no changes to our earnings forecasts, we have revised our ESG rating for SUNCON from 4 stars to 3 stars. This reflects the governance shortfall uncovered in the current investigation. Despite the incident being isolated, it exposes vulnerabilities at the operational level that warrant closer scrutiny and justify a more prudent ESG stance going forward.

Valuation

Excluding the 3% ESG premium, we lower our target price to RM5.59 (from RM5.76 previously), based on an unchanged target PER of 22x CY26 earnings. In light of the ongoing investigation, we anticipate heightened investor caution, which may prompt near-term profit-taking. As such, we maintain our Sell recommendation on the stock and advise investors to capitalise on any strength in share price as an opportunity to pare down exposure.