RHB Investment Bank (RHB) reported a positive outlook for Sunway Construction (SCGB MK) following recent developments, maintaining a BUY recommendation with a new target price (TP) of RM4.32, indicating a 14% upside and approximately 2% FY24F yield.
The latest update centres on Toyo Ventures Holdings’ (TOYOVEN MK) subsidiary Song Hau 2 Power Company achieving the financial closing date for the Song Hau 2 thermal power plant (SH2P) on June 28, a significant milestone despite pending funding details.
Earlier, on June 7, TOYOVEN secured an equipment procurement facility of up to USD 980 million, potentially financing 70% of SH2P’s invoice amount, and on June 12 it entered into a grid connection agreement with Vietnam’s National Power Transmission Corporation.
Sunway Construction, through a joint venture with Power Engineering Consulting Joint Stock Company 2 (PECC2), formalised the EPCC contract for SH2P in March 2023, with SCGB holding a 55% stake, translating to an effective share of approximately RM6bn in the USD2.4bn project.
RHB adopted a cautious stance, making no changes to SCGB’s earnings estimates pending the notice to proceed by TOYOVEN, though projections indicate SH2P could boost earnings by less than 5% for FY24F and 18–32% for FY25F and FY26F, assuming the project value remains constant.
Despite unchanged earnings forecasts, RHB increased the target price-to-earnings ratio (P/E) to 21.5x from 20.5x for FY25F EPS, reflecting SCGB’s potential to secure significant data centre projects in Johor and Selangor, adding to the RM4.3bn worth of data centre works already secured.
RHB anticipates further growth in SCGB’s order book, currently around RM7.9bn excluding SH2P, from industrial projects related to warehouses and semiconductor facilities, highlighting a recent contract for Daiso Malaysia Group’s global distribution centre in Port Klang worth RM298m.
With manageable risks of manpower capacity constraints and the potential for industrial building systems deployment, SCGB is well-positioned to benefit from long-term catalysts such as Sunway’s hospital expansion plans across Penang, Kelantan, and Iskandar Puteri.
Given the robust pipeline and strategic initiatives, RHB believes that SCGB offers attractive investment potential, justifying the maintained BUY rating and revised TP of RM4.32, incorporating a 6% ESG premium.
