SUNCON: Strong Performance Exceeds Expectations on Operational Efficiency, Target Price Raised

A leading construction firm reported a robust financial performance for the nine months ended 3Q25, with its core net profit of MYR271 million significantly exceeding both the investment bank’s and Street’s projections by 85% and 87% respectively. This strong showing represents a remarkable 176% year-on-year increase.

Performance Review

The stellar results were primarily attributed to the faster-than-expected progress of its existing data centre (DC) projects. The construction arm’s Profit Before Tax (PBT) surged 80% year-on-year in 3Q25, achieving a solid PBT margin of 8.9%, an improvement from 8.2% in 3Q24. This margin expansion reflects accelerated progress across ongoing projects, particularly those related to data centres, which now constitute 37% of the firm’s order book and in-house jobs.

Key DC projects demonstrated significant advancement: the JHB1X0 DC, valued at MYR4.1 billion, is nearing completion at approximately 97% as of end 3Q25, up from 80% in 2Q25. Similarly, the PSR MNC DC progressed to 54% completion from 29.5% in 2Q25. The precast segment also saw a notable doubling of its PBT to MYR4 million in 3Q25 as projects reached their peak delivery stage. Additionally, the firm announced an interim and special dividend, bringing the cumulative payout to 41.5 sen, translating to an attractive 7.2% yield.

Order Book and Future Outlook

As of end 3Q25, the construction order book stood at approximately MYR5.4 billion. The firm successfully secured MYR3.9 billion worth of new orders year-to-date in FY25, moving closer to its FY25 new wins target of MYR6 billion. Its active tender book has expanded to MYR18.2 billion (from MYR14.8 billion in 2Q25), with roughly 80% comprising DC-related projects. The company anticipates upcoming wins from parent company-related property developments, such as Seremban Sentral, and potential expansion works for the JHB1X0 DC in Sedenak, which has a total planned capacity of 200-300MW. The potential to secure additional DC jobs in the Klang Valley by end-CY25 is also seen as a significant positive.

A key re-rating catalyst for the company would be securing packages from the highly anticipated Penang Light Rail Transit (LRT) project, building on its previous infrastructure wins including the Rapid Transit System Link package 1B and Package 5 in March 2023.

Analyst View and Valuation

The investment bank maintained its “BUY” recommendation for the stock, raising its target price to MYR7.32 from MYR7.26. This new target price implies a 28% upside and a c.3% FY26F yield. The revised valuation incorporates a 6% ESG premium and is based on pegging the FY26F EPS to an unchanged target P/E of 23.5x. The analyst notes that the stock is currently trading at a 19.5x FY26F P/E, suggesting a higher valuation is warranted, underpinned by the better margins and faster turnaround times associated with DC jobs. While earnings for FY25F-26F have been raised by 11.6% and 1%, the FY27F profit has been slightly toned down by 2% due to front-loading of billing recognitions for DC jobs.

A primary risk to the outlook remains lower-than-expected job wins, which could impact future growth.