KUALA LUMPUR: Sunway Construction Group Bhd (SunCon) may serve as a stand-in for future infrastructure project rollouts, a burgeoning data centre industry, and a parent-company empire, according to Hong Leong Investment Bank Bhd (HLIB).
In contrast to its typical target of RM2 billion, SunCon has decided to set a base case target of RM2.5 billion to RM3 billion for the financial year 2024 (FY24).
According to HLIB, this will be somewhat alleviated by pending tenders, wherein awards may extend beyond FY24.
The investment bank thinks that these are contracts for which the bidding procedure was started towards the close of the previous year.
"Making up its RM2.5 billion to RM3 billion target are RM1 billion internal projects, with the remaining RM1.5 billion to RM2 billion from external projects such as data centres, precast, warehouses, and factories.
"We expect to see some contracts flowing in by the first quarter of the calendar year 2024 (1QCY24)," it said in a note.
HLIB sees multiple upside risks to the management's conservative target given that projects like the Cochrane mixed development project, the free commercial zone in Iskandar Puteri (phase 1 to be completed by 2025), the MRT3 (CMC301 and 302) worth over RM13 billion, and the Song Hau 2 power plant valued at around RM6.3 billion were left out.
"With potential rollout of Penang LRT in 2024, SunCon could also participate in work packages. All in all, we are expecting a stronger replenishment year versus the management's base case," it said.
HLIB said that SunCon's first data centre project (JHB1X0) may see a slow contribution in 1QFY24 as the contract progresses into Notice to Proceed 2, which will necessitate finalised end-user specs.
"Expectations are that progress will kick into higher gear by mid-CY24. The progress of this project remains the biggest swing factor in our FY24 earnings estimates. We reckon the potential designation of Sedenak as part of the Johor-SG SEZ could raise the profile of the area as a data centre hotspot.
"Though contribution from the JHB1X0 project could still remain sluggish for the time being, we anticipate its K2 data centre project in Sedenak Tech Park might pick up some of the slack (resources reallocated for the time being). Like all data centres, the progress schedule is relatively steep, leading to accelerated billings," it said.
Going forward, HLIB is expecting SunCon to become more entrenched in Johor with various developments likely taking place.
It anticipates further developments in all Sunway townships, while mega infra connectivity developments like the Johor LRT and Kuala Lumpur-Singapore high-speed rail will be catalytic to prospects.
The investment bank is keeping a buy recommendation on SunCon with a higher target price of RM2.95.