15 August 2025
Sunway Construction (SCGB MK)
Expecting a Stronger 2Q25; Stay BUY
- Still BUY and MYR6.55 TP, 22% upside and 3% FY26F yield. We expect Sunway Construction to chalk in a 2Q25 core profit ranging between MYR70m and MYR85m (translating into a YoY growth of 88-129% backed by a combination of progress for its internal jobs and some data centre (DC) jobs. Our observations in Ipoh and Cyberjaya indicate that the Sunway City Ipoh Mall (SCIM) and the Project Services Request (PSR) multinational corp (MNC) DC job has reached commendable progress in June and July.
- As of end Mar 2025, SCIM (slated for completion in 1Q27) was only 11% completed but during our visit in Jul 2025, we estimate that progress may have reached to around 20-25% (Figure 1). Separately, our observation for SCGB’s DC projects namely the PSR MNC in Cyberjaya has also seen commendable advancement with progress likely being at 30-35% in late June (in our view) compared to 19% as of end March).
- Having a parent with solid prospects. Sunway (SWB MK, BUY, TP: MYR5.81) will be developing a Transport Oriented Development (TOD) project; Seremban Sentral (estimated GDV: MYR2.2bn). Conservatively assuming that construction cost is 40% of GDV, the potential construction value could be around MYR880m. We do not rule out the possibility of SCGB being a front runner for this project in light of its involvement for the Rapid Transit System TOD project at Bukit Chagar, Johor Bahru.
- Healthcare arm of SWB to provide a steady job pipeline. Putrajaya Holdings and Sunway Healthcare Holdings have signed a heads of agreement to jointly develop a private tertiary medical centre in Precinct 7, Putrajaya. The first component of the medical centre is expected to house a tertiary hospital with over 300 beds. Taking the minimum 300 bed capacity as a base – we envisage that the potential construction value could be between MYR400m and MYR600m. Other hospitals in the pipeline include the Iskandar Puteri in Johor, Paya Terubong in Penang and Kota Bahru in Kelantan.
- No changes to our earnings estimates. Hence, our TP of MYR6.55 is unchanged – which is derived by pegging the FY26F EPS to an unchanged target P/E of 23.5x and ascribing a 2% ESG premium. This is justified by SCGB’s ROE being the highest among its peers, in addition to above-industry ROEs coupled with job prospects from its parent which has a strong presence in Ipoh and Johor. The stock is currently trading at a 20x FY26F P/E which we view may still have room to go higher (provided that new DC wins come in). SCGB was trading around 15-17x during the 2017 construction upcycle (with no DC factor).
- Other developments to keep investors interested in the stock include Segment 2 of Penang Light Rail Transit and the potential expansion of SCIM. Key risk: Lower-than expected job wins.
Analyst
Adam Bin Mohamed Rahim
+603 2302 8101
adam.mohamed.rahim@rhbgroup.com
Share Performance (%)
| YTD | 1m | 3m | 6m | 12m | |
|---|---|---|---|---|---|
| Absolute | 16.2 | (9.6) | 7.8 | 22.8 | 21.2 |
| Relative | 19.6 | (12.8) | 7.6 | 23.1 | 22.8 |
| 52-wk Price low/high (MYR): 3.29 – 6.16 | |||||
[Chart showing Sunway Construction (SCGB MK) Price Close and Relative Performance to FBM KLCI from Aug-24 to Aug-25]
Source: Bloomberg
Forecasts and Valuation
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total turnover (MYRm) | 2,671 | 3,522 | 5,116 | 5,542 | 6,052 |
| Recurring net profit (MYRm) | 151 | 171 | 302 | 353 | 409 |
| Recurring net profit growth (%) | 5.0 | 13.3 | 76.3 | 17.1 | 15.8 |
| Recurring P/E (x) | 45.88 | 40.49 | 23.02 | 19.70 | 17.01 |
| P/B (x) | 8.5 | 7.9 | 7.0 | 6.1 | 5.3 |
| P/CF (x) | na | 9.68 | na | 20.67 | 13.68 |
| Dividend Yield (%) | 1.1 | 1.6 | 2.6 | 3.0 | 3.5 |
| EV/EBITDA (x) | 25.41 | 25.00 | 15.12 | 13.77 | 10.57 |
| Return on average equity (%) | 18.6 | 22.0 | 32.2 | 33.1 | 33.5 |
| Net debt to equity (%) | 38.7 | net cash | net cash | net cash | net cash |
Overall ESG Score: 3.1 (out of 4)
E Score: 3.4 (EXCELLENT)
S Score: 3.0 (GOOD)
G Score: 2.7 (GOOD)
Please refer to the ESG analysis on the next page
Source: Company data, RHB
Sunway Construction
15 August 2025
Emissions And ESG
Trend analysis
While Scope 1 emissions increased in FY24 by 65% YoY, total emissions have dropped by 15% in FY24
| Emissions (tCO2e) | Dec-22 | Dec-23 | Dec-24 | Dec-25 |
|---|---|---|---|---|
| Scope 1 | 7,167 | 7,440 | 12,283 | na |
| Scope 2 | 4,504 | 6,997 | 6,729 | na |
| Scope 3 | 168,888 | 314,414 | 248,952 | na |
| Total emissions | 180,559 | 328,851 | 267,964 | na |
Source: Company data, RHB
Latest ESG-Related Developments
As part of its continuous sustainability journey, FY24 marked a significant milestone in strengthening SCGB’s Greenhouse Gas (GHG) emissions accounting.
SCGB integrated the latest emission factors and expanded our Scope 3 coverage to include 6 out of 15 categories as part of our transition to IFRS S2.
These enhancements have improved the accuracy and transparency of its carbon footprint assessment, underscoring commitment to data-driven climate action and reinforcing efforts to drive meaningful decarbonisation across the group’s value chain.
ESG Unbundled
Overall ESG Score: 3.1 (out of 4)
Last Updated: 20 Feb 2025
E Score: 3.4 (EXCELLENT)
SCGB’s solar investment projects are generating green attributes which enables carbon avoidance of about 3,305 tonnes CO2e, offsetting close to 50% from the group’s FY2023 Scope 2 emission, placing it in a good position to prematurely achieve the group’s 2030 target. This includes offsets generated from rooftop solar panels on assets at Sunway Enterprise Park and Sunway Precast Industries.
S Score: 3.0 (GOOD)
The group ensures the safety and health of all its employees, and public areas surrounding the construction sites, via various training and safety programmes. Apart from up-to-standard health & safety policies, we see active community engagement and efforts to uplift employee relations.
G Score: 2.7 (GOOD)
The latest incident may indicate that SCGB may need to enhance its internal controls further to prevent such instances from occurring again.
ESG Rating History
[Chart showing ESG Rating History from Aug-23 to Aug-25, showing a rating of 3.3 consistently until a drop to 3.1 in Aug-25]
Source: RHB
Sunway Construction
15 August 2025
Financial Exhibits
Valuation basis
We value the company based on FY26F P/E of 23.5x. Sunway Construction’s minimal net debt position allows it to gear up for more jobs moving forward.
Key drivers
Sunway Construction’s earnings are backed by:
- An outstanding order backlog of c.MYR7.5bn, of which >90% is from construction, which would keep the firm busy for the next three years;
- Recurring orders from its parent company.
Key risks
Lower-than-expected job wins
Company Profile
Sunway Construction is one of Malaysia’s largest construction companies. Apart from civil & infrastructure construction services, the group also provides the more specialised: i) Foundation & geotechnical engineering services; and ii) mechanical, electrical, and plumbing or MEP services. In addition, it runs highly profitable precast concrete product manufacturing operations in Malaysia and Singapore.
Aside from fulfilling local requirements, the group also largely supplies hose concrete products for Housing & Development Board (HDB) projects in Singapore.
Asia
Malaysia
Construction & Engineering
SCGB MK
Buy
| Financial summary (MYR) | Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Recurring EPS | 0.12 | 0.13 | 0.23 | 0.27 | 0.32 |
| DPS | 0.06 | 0.09 | 0.14 | 0.16 | 0.19 |
| BVPS | 0.64 | 0.68 | 0.77 | 0.88 | 1.01 |
| Return on average equity (%) | 18.6 | 22.0 | 32.2 | 33.1 | 33.5 |
| Valuation metrics | Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Recurring P/E (x) | 45.88 | 40.49 | 23.02 | 19.70 | 17.01 |
| P/B (x) | 8.5 | 7.9 | 7.0 | 6.1 | 5.3 |
| FCF Yield (%) | (4.6) | 10.2 | (3.3) | 4.6 | 7.1 |
| Dividend Yield (%) | 1.1 | 1.6 | 2.6 | 3.0 | 3.5 |
| EV/EBITDA (x) | 25.41 | 25.00 | 15.12 | 13.77 | 10.57 |
| EV/EBIT (x) | 31.66 | 24.75 | 16.86 | 15.37 | 11.59 |
| Income statement (MYRm) | Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Total turnover | 2,671 | 3,522 | 5,116 | 5,542 | 6,052 |
| Gross profit | 434 | 211 | 1,940 | 1,341 | 1,308 |
| EBITDA | 279 | 260 | 445 | 485 | 624 |
| Depreciation and amortisation | (55) | 3 | (46) | (50) | (55) |
| Operating profit | 224 | 262 | 399 | 434 | 569 |
| Net interest | (21) | 11 | 37 | 33 | 38 |
| Pre-tax profit | 189 | 273 | 438 | 467 | 588 |
| Taxation | (43) | (76) | (118) | (113) | (159) |
| Reported net profit | 145 | 187 | 302 | 353 | 409 |
| Recurring net profit | 151 | 171 | 302 | 353 | 409 |
| Cash flow (MYRm) | Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Change in working capital | (511) | 535 | (453) | (67) | 24 |
| Cash flow from operations | (299) | 717 | (215) | 337 | 509 |
| Capex | (18) | (9) | (15) | (15) | (15) |
| Cash flow from investing activities | (63) | 139 | (42) | (45) | (44) |
| Dividends paid | (72) | (116) | (181) | (212) | (246) |
| Cash flow from financing activities | 337 | (303) | 200 | 62 | 31 |
| Cash at beginning of period | 492 | 470 | 1,016 | 651 | 787 |
| Net change in cash | (24) | 552 | (57) | 354 | 496 |
| Ending balance cash | 467 | 1,023 | 960 | 1,007 | 1,286 |
| Balance sheet (MYRm) | Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Total cash and equivalents | 582 | 1,016 | 763 | 899 | 1,178 |
| Tangible fixed assets | 99 | 173 | 191 | 196 | 196 |
| Total investments | 253 | 224 | 222 | 204 | 29 |
| Total assets | 3,083 | 3,596 | 3,139 | 3,832 | 4,187 |
| Short-term debt | 438 | 731 | 731 | 781 | 831 |
| Total long-term debt | 489 | 1 | (11) | (11) | (11) |
| Total liabilities | 2,191 | 2,658 | 2,097 | 2,649 | 2,860 |
| Total equity | 892 | 939 | 1,041 | 1,183 | 1,326 |
| Total liabilities & equity | 3,083 | 3,596 | 3,139 | 3,832 | 4,187 |
| Key metrics | Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Revenue growth (%) | 23.9 | 31.8 | 45.3 | 8.3 | 9.2 |
| Recurrent EPS growth (%) | 5.0 | 13.3 | 75.9 | 16.9 | 15.8 |
| Gross margin (%) | 16.3 | 6.0 | 37.9 | 24.2 | 21.6 |
| Operating EBITDA margin (%) | 10.5 | 7.4 | 8.7 | 8.7 | 10.3 |
| Net profit margin (%) | 5.4 | 5.3 | 5.9 | 6.4 | 6.8 |
| Dividend payout ratio (%) | 53.3 | 58.6 | 60.0 | 60.0 | 60.0 |
| Capex/sales (%) | 0.7 | 0.3 | 0.3 | 0.3 | 0.2 |
| Interest cover (x) | 4.68 | 4.02 | 11.18 | 13.17 | 13.95 |
Source: Company data, RHB
Sunway Construction
15 August 2025
Figure 1: Progress at SCIM’s site in Ipoh in July
[Image showing the construction site of Sunway City Ipoh Mall]
Source: RHB
Figure 2: Artist impression of SCIM
[Image showing an artist’s rendering of the completed Sunway City Ipoh Mall]
Source: Company data
Recommendation Chart
[Chart showing Recommendations & Target Price vs Price Close from Aug-20 to Feb-25]
Source: RHB, Bloomberg
| Date | Recommendation | Target Price | Price |
|---|---|---|---|
| 2025-07-21 | Buy | 6.55 | 5.49 |
| 2025-05-30 | Buy | 6.80 | 5.90 |
| 2025-05-21 | Buy | 6.22 | 5.15 |
| 2025-05-14 | Buy | 5.63 | 4.99 |
| 2025-03-05 | Buy | 5.63 | 4.24 |
| 2025-02-21 | Buy | 5.63 | 4.45 |
| 2025-02-17 | Buy | 5.50 | 4.18 |
| 2025-01-19 | Buy | 5.50 | 3.63 |
| 2024-11-22 | Buy | 5.50 | 4.56 |
| 2024-08-26 | Buy | 5.50 | 4.14 |
| 2024-08-23 | Buy | 5.50 | 4.16 |
| 2024-07-19 | Buy | 6.29 | 5.02 |
| 2024-07-05 | Buy | 4.92 | 4.35 |
| 2024-07-01 | Buy | 4.32 | 3.90 |
| 2024-06-11 | Buy | 4.12 | 3.74 |
Source: RHB, Bloomberg
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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| Analyst | Company |
|---|---|
(2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
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