ESG: Robust Domestic Projects Propel Earnings Past Expectations

A leading construction and property group reported record-high core earnings for the latest financial year, significantly exceeding market expectations. The impressive financial results were primarily driven by robust domestic project contributions and expanded margins within its construction division.

Performance Review

For the financial year 2025 (FY25), the group achieved record-high core earnings of RM982.5 million, a performance that met 97.7% of the firm’s own forecast and 96.7% of consensus estimates. This strong showing was largely attributed to a substantial 56% year-on-year increase in domestic project contributions, which constituted 36% of FY25 revenue, up from 25% in the prior year. Additionally, the construction division saw its net margin expand to 5.0% in FY25 from 4.7% in FY24.

Year-on-year revenue surged by 19.7%, propelled by higher progress billings from ongoing domestic construction projects, which saw a remarkable 146% increase. This was bolstered by significant domestic contract wins totaling RM12.1 billion, surpassing foreign job wins. However, core net profit growth was a more modest 11.1% year-on-year, partly due to a higher effective tax rate (+5.6%) in FY25, though this impact was partially mitigated by higher-margin domestic construction contracts.

On a quarter-on-quarter basis, 4QFY25 revenue jumped an impressive 53.2%, primarily from increased revenue recognition from existing property projects, particularly overseas ventures like Vietnam’s Quick Turnaround Projects (QTPs) and Eaton Park, alongside stronger progress billing from construction projects. Consequently, core net earnings for the quarter rose 32.5% to RM325.2 million, underscoring solid performance in the construction segment.

While the group’s FY25 property sales of RM4.1 billion missed its RM5 billion target due to softer property demand in Malaysia, management remains optimistic about a turnaround.

Future Outlook and Growth Drivers

The group boasts a strong unbilled order book of RM38.4 billion, which translates to 3.1 times its FY25 construction revenue and provides substantial earnings visibility for the next three years. Management is confident in achieving its internal unbilled order book target of RM40-45 billion by end-CY25, supported by a robust pipeline of prospective new contract wins estimated at RM50 billion across key markets, including Malaysia, Singapore, Taiwan, and Australia. A significant portion (approximately 60%) of these tenders are infrastructure-related.

Management anticipates a gradual improvement in construction segment margins, driven by a greater share of higher-margin domestic order book. For property development, sales momentum is expected to improve in FY26, with a target of RM5.5 billion, thanks to new launches focused on mid-market segments in Malaysia and Vietnam. Future growth could also be enhanced by potential strategic acquisitions, such as the proposed Chencharu land acquisition in Singapore, earmarked for a significant transit-oriented development.

Analysts maintain a positive outlook on the group’s capability to secure additional large-scale projects, underpinned by its strong execution track record and entrenched market position. Earnings growth momentum is expected to remain intact, supported by the robust outstanding order book and a healthy backlog of unbilled property sales, offering solid revenue visibility for the next three years. The earnings for FY26-27 have been revised upward, with FY28 core net profit growth projected at 13.4% year-on-year.

Investment Recommendation

Following the positive earnings revisions and strong outlook, TA Securities has raised its SOP-derived target price to RM6.58 from RM6.43, incorporating a 3% ESG premium. The investment bank has maintained a BUY recommendation on the stock.