SUNCON: Strong Earnings Beat on Robust Project Delivery and Cost Efficiencies, Target Price Raised

Performance Review

A leading construction group has reported core earnings significantly ahead of market expectations for the first nine months of its financial year 2025 (9MFY25), driven primarily by robust project execution and effective cost management. The strong performance has led to an upgrade in its investment rating and a revised target price by TA Securities, reflecting a positive outlook on its expanding order book and strategic positioning in high-growth sectors.

For 9MFY25, the group’s core earnings soared to RM271.0 million, more than doubling year-on-year from RM98.1 million. This figure comfortably surpassed both TA Securities’ and consensus full-year forecasts, accounting for 83.8% and 85.1% respectively. Group revenue also saw a substantial increase, more than doubling year-on-year to RM4.3 billion. The outperformance was largely attributed to faster-than-expected progress billings from data centre projects, which are currently at peak execution, alongside significant contributions from in-house developments such as the Sunway Square and Sunway Ipoh Mall. Margins also improved, with the profit before tax (PBT) margin expanding by 70 basis points to 8.4% due to higher interest income and reduced finance costs, coupled with a lower effective tax rate.

On a quarter-on-quarter basis, revenue saw a modest 2.1% decline, mainly due to the completion of several major projects in the preceding quarter and the early-stage progress of newly commenced jobs. Despite this, PBT increased by 3.6%, bolstered by stronger joint venture contributions and higher interest income. The group also declared a third interim dividend of 6.25 sen per share and a special dividend of 23 sen per share, bringing the 9MFY25 total dividend payout to 41.5 sen per share. This prompted TA Securities to revise its FY25 dividend forecast significantly upwards to 50 sen per share.

Future Outlook and Investment Thesis

Looking ahead, the group’s prospects remain strong, underpinned by a healthy order book and strategic project pipeline. Year-to-date, it has secured RM3.9 billion in new orders, increasing its outstanding unbilled order book to RM5.4 billion, providing approximately three years of earnings visibility. The investment bank noted the group is on track to meet its order book replenishment targets, supported by a growing pipeline of data centre projects and in-house property developments from its parent company. The expanding data centre segment, known for its shorter construction cycles, is expected to drive faster revenue recognition. Additionally, robust domestic infrastructure rollouts, including the Johor ART and Penang LRT, are anticipated to create substantial opportunities where the group is well-positioned to secure contracts due to its strong track record and balance sheet.

Factoring in the robust performance and positive outlook, TA Securities has upgraded its recommendation for the stock from “Hold” to “Buy” and raised its target price to RM6.41, up from RM6.31 previously. The new target price, based on 22x FY26 earnings with a 3% ESG premium, implies a potential upside of 20.5% from the last traded price of RM5.73. The revised dividend forecast also places its FY25 dividend yield at 8.7%, reportedly the highest among its peers. The investment bank continues to favor the group due to its strong position in mega infrastructure projects and its leading role in the thriving advanced technology project (ATP) industry. Potential downside risks include slower-than-expected new order book wins, delays in large-scale infrastructure projects, and weaker-than-expected property sales.