Sunway Construction Group Berhad

Sharing from another remisier...

*Quick Take On Property Sector* 📝

*Mah Sing and Eco World (ECW) experienced the steepest declines among property companies*, with shares dropping 15% and 14%, respectively, following the announcement of restrictions on advanced AI chips. SP Setia and Sunway have also declined by 6% post-announcement. Here are our thoughts:

🔺 Concerns about future land valuations and the total addressable market for data centers (DC) have weighed on sentiment, but we believe the market has fairly priced in the associated risks, pending further clarity from the US government.

🔸In our view, *there remains a risk to Mah Sing’s Southville joint venture* due to its ties with parent company - Chindata, which is headquartered in China and subject to Chinese data laws, as well as association with a potential offtaker - Bytedance, which is also a major client of Chindata. The Chinese data laws raise concerns about data sovereignty and potential challenges in attaining/retaining VEU status.

🔸Despite these concerns, *we think the sell-down in Mah Sing is unwarranted given its proactive measures in safeguarding from premature project commitments.* We understand that the collaboration with BDC has built-in conditions precedent, requiring BDC to secure Tier 1 hyperscale or AI-focused companies, before the project can officially commence. *It seems that finalizing the agreement is proceeding as planned*, targeting commencement of Phase 1 operations in 2026. This suggests that BDC sees less risk and low likelihood of the project halting. Additionally, BDC has paid a non-refundable upfront fee, providing financial assurance to Mah Sing while reserving the land for development.

🔸Excluding DC, *Mah Sing’s core business remains resilient, with strong demand for its property launches and higher progressive billings for 2025-26* as its projects enter mid-stage construction.

🔸 *Current price still provides a fair amount of upside* to the scenario-based TP if we were to:

1) exclude DC components, our target price will be RM1.94.

2) exclude DC components and assume a higher discount on RNAV at 50% (vs 5-year mean of 63%), our target price will be RM1.61.

🔺*ECW’s valuation has increasingly traded at a premium* due to its exposure to industrial parks and its ability to secure land sales to top-tier data centre players, such as Microsoft and Princeton.

🔺*This restriction does not impact ECW’s current and ongoing deals, and we expect the company to announce another data center deal soon.* Additionally, the 7% cap limit per country requirements for VEU status companies is unlikely to significantly impact US-based hyperscalers (ie Microsoft), given their larger scale and demand for DC.

🔺We believe a valuation premium on ECW is still justifiable, as: a) current and ongoing DC deals are not impacted, b) it’s also *focusing on high-margin high-technology industrial parks which continues to be in high demand*, and c) strong pricing power and execution. Our target price of RM2.35 is based on 40% discount to RNAV (vs historical mean of 60%).

🔸*SP Setia, with its share price down 6% post-announcement, has suffered collateral damage* despite having no current DC exposure.

🔸We estimate that *only 6% of the landbank will be used for future JV with DC* (calculated based on 18% industrial landbank and 1/3 is from Tanjung Kupang land, majority of that land will be used for DC). Hence, any impacts would also be minimal. Our target price of RM1.95 is based on 50% discount to RNAV, close to its historical mean of 57%.

🔺*Sunway Bhd's share price also declined by 6% post-announcement, mainly driven by SunCon's significant exposure to DC projects*. However, we believe the impact will be mitigated as: a) SunCon can rely on internal contracts from Sunway Bhd, and b) its order books and tenders are primarily focused on cloud DCs, which have minimal demand for the restricted AI chips.

🔺*Our current target price of RM4.71* is based on SOTP valuation, with a 15% RNAV discount and 21x 2025PE.

If we were to cut SunCon’s implied PE to 17x, *following our construction analyst’s recommendation,* our target price will be *RM4.61,* still provides 10% upside at current level.

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
$SPSETIA / 8664 (S P SETIA BERHAD)
$MAHSING / 8583 (MAH SING GROUP BERHAD)

Sharing from remisier

♨️ Fresh From Oven ♨️

Trump Scraps Biden’s Sweeping AI Order in Regulatory Reset

(Bloomberg) -- President Donald Trump rescinded the Biden administration’s sweeping executive order regulating artificial intelligence, marking a significant shift in federal oversight for the rapidly advancing technology.

The move, announced on Monday, immediately halts the implementation of key safety and transparency requirements for AI developers. Biden’s mandate, which was signed in 2023, had required leading artificial intelligence companies to share safety test results and other critical information for powerful AI systems with the federal government. It also prompted the creation of the US AI Safety Institute, housed under the Commerce Department, to create voluntary guidelines and best practices for the technology’s use.

Trump didn’t immediately say exactly what would replace the order, but the administration is likely to take a more hands-off approach. Before returning to the White House, Trump had criticized Biden’s AI regulations as heavy-handed and hindering tech innovation. Trump also appointed David Sacks, a venture capitalist and longtime critic of tech regulation, as his crypto-AI czar.

With the repeal, Trump has thrown the future of US AI policy into question at a time when other countries are jockeying to set rules of the road for the disruptive technology. Last year, the European Union passed the AI Act, perhaps the most comprehensive guardrails for AI to date. The rules ban facial recognition and require strict oversight for “high-risk” AI used in sectors like healthcare and law enforcement, among other efforts.

To recap:

The Executive Order is guided by eight principles and priorities:

1. AI must be safe and secure by requiring robust, reliable, repeatable and standardized evaluations of AI systems, as well as policies, institutions, and, as appropriate, mechanisms to test, understand, and mitigate risks from these systems before they are put to use.

2. The US should promote responsible innovation, competition and collaboration via investments in education, training, R&D and capacity while addressing intellectual property rights questions and stopping unlawful collusion and monopoly over key assets and technologies.

3. The responsible development and use of AI require a commitment to supporting American workers though education and job training and understanding the impact of AI on the labor force and workers’ rights.

4. AI policies must be consistent with the advancement of equity and civil rights.

5. The interests of Americans who increasingly use, interact with, or purchase AI and AI-enabled products in their daily lives must be protected.

6. Americans’ privacy and civil liberties must be protected by ensuring that the collection, use and retention of data is lawful, secure and promotes privacy.

7. It is important to manage the risks from the federal government’s own use of AI and increase its internal capacity to regulate, govern and support responsible use of AI to deliver better results for Americans.

8. The federal government should lead the way to global societal, economic and technological progress including by engaging with international partners to develop a framework to manage AI risks, unlock AI’s potential for good and promote a common approach to shared challenges.

To clarify, this is not the framework of Interim Final Rule on AI Diffusion

🧠 Our thoughts 🧠

👀 are on the directive of the disruptive Interim Final Rule on AI Diffusion under Trump's administration now - which crushed MY market past 1 week.

To recap, following the release of this framework, sharp correction were seen across BM Construction Index (-10%), followed by BM Property (-4%) and BM Utilities (-2%) indexes.

While the framework casts uncertainties on Malaysia’s AI/DC growth narrative (given its Tier-2 categorisation, it is likely to be subjected to export caps and licensing requirements), we still keeping our view that the impact is confined only to selective companies with most data centre (DC) exposure, particularly those to AI GPU servers

And this, will be the game changer if it happens - with the framework’s 120-day comment period which provides room for reassessment, we see a plausible scenario where the widely condemned framework could be recalibrated given Trump’s pro-business policies.

So if this materialises whether the framework is being rescinded or recalibrated (our baseline hope), lists as below could see its fortune flipped to the Lady Fortuna 💃🏻

$NATGATE / 0270 (NATIONGATE HOLDINGS BERHAD)
$IJM / 3336 (IJM CORPORATION BERHAD)
$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)

Titan Weekend Chart Reviews

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)

Huge sell off from its RM 5.30 all time high levels all the way towards the RM 3.45+ main support levels.

Now finally showing some buying support here, which could lead to a rebound back towards the RM 4+ major resistance levels soon here

Support: RM 3.60, RM 3.45 areas
Resistance: RM 3.70, RM 3.85, RM 4 areas

AMINVESTMENT TOP PICKS 2025

Putting theory into practice

Coming off a blockbuster year, we take a more balanced approach for Malaysia equities in 2025. We believe market liquidity will still be healthy, as potential cash
received from a spike in privatisation activities and rising cash levels (as a % of AUM), will eventually have to be redeployed. However, due to the high base achieved in 2024, the key challenge for the year ahead is deciding what to buy. Our focus is on sectors that have been relatively unloved and those with strong structural thematics. Stock picking will also play a key role, as pockets of opportunities do exist, within sectors we are Neutral on. Our top picks are CIMB, Gamuda, KL Kepong, Sime Darby Property and Vitrox. Mimicking our views, we are excited to introduce AmResearch’s model portfolio, a tool designed to instil accountability, by empowering clients to track our recommendations.

$VITROX / 0097 (VITROX CORPORATION BERHAD) $SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD) $MFCB / 3069 (MEGA FIRST CORPORATION BERHAD)

Titan Trading Notes For Monday [30/12/2024]:

KLCI had a decent breakout back towards the 1628 points region with an overall positive market sentiment as KLCI window dresses to close for the year of 2024. Overall daily trading volume remains relatively low as we ended the day with only 2.8 billion.

Main stocks that showed strong buying momentum would be the likes of MYEG, JCY, CUSCAPI, SUPERMX, ECA, TOPGLOV, UEMS, EKOVEST, GAMUDA, TENAGA, MRCB, SIMEPROP, TANCO, MUIIND, IWCITY, HAWK, and DNEX. All of which were able to sustain their rallies throughout the day on the top volumes list.

$MYEG / 0138 (MY E.G. SERVICES BERHAD) since breaking out from its RM 0.915+ main downtrend resistance with good volume and buying momentum earlier this month, been able to sustain its buying momentum over the past few weeks.

On Friday, was even able to breakout back towards the RM 0.97 regions with good volume and buying momentum. So far as long as able to hold above its RM 0.94+ immediate support, could continue to trend back up towards the RM 1+ regions soon.

Will be monitoring MYEG closely here as seems to be starting to trend back up soon.

$SUPERMX / 7106 (SUPERMAX CORPORATION BERHAD) on the other hand since breaking out towards the RM 1.20+ regions, had been able to hold well above the RM 1.18 support over the past week despite the mixed market sentiment.

On Friday, it was even able to breakout back towards the RM 1.29 regions with good volume and buying momentum here. Looking very strong here and as long as able to sustain above its RM 1.22+ immediate support, could continue to trend back up towards the RM 1.30+ regions soon.

Will be monitoring SUPERMX closely here as it's one of the strongest glove counters that are trending back up now.

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD) since consolidating within a huge symmetrical triangle pattern over the past 5-6 months on the daily chart, was able to breakout from its RM 4.60+ major resistance levels over the past week and hold strong above it.

On Friday, it was even able to breakout towards the RM 4.73+ regions with good volume here. If able to sustain, could trend back up towards the RM 5+ major resistance levels in the coming weeks for an uptrend continuation pattern.

Will be monitoring SUNCON closely here

Titan Weekend Chart Reviews

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)

Been consolidating over the past 6-7 months within a symmetrical triangle pattern here on the daily chart.

Just started to breakout form its RM 4.60+ major resistance last week and if able to sustain, could trend back up towards its RM 5.10+ major resistance levels soon in the coming weeks.

Support: RM 4.60 area
Resistance: RM 4.80, RM 4.90, RM 5, RM 5.18 areas

Titan Weekend Chart Reviews

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)

Quite a big symmetrical triangle consolidation pattern here with RM 4.65 as the main resistance on the daily chart.

If able to breakout from this pattern, could trend back up towards its RM 5+ all time high levels soon.

Support: RM 4.30 area
Resistance: RM 4.65, RM 4.80, RM 5 areas

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by TA

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by RHB

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by MAYBANK

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by KENANGA

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by CGSI

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by TA

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by Kenanga

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by Maybank

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by CGSI

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by CGSI

Titan Weekend Chart Reviews

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)

Although retraced all the way back towards the RM 3.80+ support, was able to recover strong and broke out towards the RM 4.60 regions during last Friday.

So far looking quite strong here and as long as able to sustain above its RM 4.20 immediate support, could continue on towards and beyond the RM 5+ regions soon.

Support: RM 4.40, RM 4.20 areas
Resistance: RM 4.50, RM 4.60, RM 4.75, RM 4.90 areas

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD) Construction
Research by RHB
Buy – TP RM 5.50

"No Slowdown In Scouting For DC Jobs; Stay BUY”

Still BUY and MYR5.50 TP, 32% upside and c.3% FY25F yield. Post meeting, we remain upbeat on Sunway Construction’s prospects. We still view FY25F to be a supercharged year (earnings projected to grow at c.53%) – underpinned by higher recognition from a mix of data centre (DC) jobs coupled with potential DC wins with around 766.9MW of IT supply of DCs committed in Malaysia according to DC Byte. This translates to MYR29-34bn of estimated construction value based on the construction cost of USD8.5- 10m per MW in Malaysia based on Arizton

Analyst:
Adam Bin Mohamed Rahim
adam.mohamed.rahim@rhbgroup.com

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by TA
Buy - TP RM6.15

"Stronger Earnings Expected in 2H24"

We maintain our Buy call on the stock with an unchanged TP of RM6.15, premise on 26x CY25 EPS and 3% ESG premium given our 4-star rating. We continue to like SUNCON due to:- (i) SUNCON’s strong position as a contender for mega infrastructure projects, namely MRT3, Johor ART and Penang LRT, (ii) strong earnings visibility on the back of a robust outstanding order book, and (iii) its leading position in securing more jobs in the thriving ATP industry.

Analyst:
Raymond Ng Ing Yeow
raymondng@ta.com.my

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by RHB
Buy - TP RM5.50

"Continues Exhibiting YoY Strength; Still BUY"

Still BUY, new MYR5.50 TP from MYR6.29, 30% upside and c.3% FY25F yield. 1H24 core earnings of MYR64m (+10% YoY) missed our and Street’s estimates at 36% and 35% of full-year projections. The negative deviation was mainly due to lower-than-expected progress billings of certain projects (our earlier projections were too optimistic). While we expect FY24 to see a decline in earnings, we view FY25 to be a supercharged year (earnings projected to grow at c.53%), underpinned by stronger recognition from a mix of data centre (DC) jobs.

Analyst:
Adam Bin Mohamed Rahim
adam.mohamed.rahim@rhbgroup.com

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by MIDF
Neutral - TP RM4.46

"A Brighter 2HFY24 in the Cards"

• Core earnings of RM38.9m in 2QFY24, an improvement of +17.8%yoy; 1HFY24 core earnings grew +20.0% to RM71.1m
• Construction revenue rose +11.6%yoy to RM597.6m; PBT grew +19.9%yoy to RM46.9m
• FY24 order book replenishment target raised from RM3.0b to RM4.0b-RM5.0b
• Maintain NEUTRAL with an upgraded TP of RM4.46

Analyst:
Royce Tan Seng Hooi
royce.tan@midf.com.my

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by Maybank
Sell - TP RM3.70

"2Q24: In-line"

SCGB’s 2Q24 core net profit (CNP) of MYR39m (+18% YoY, +20% QoQ), which lifted 1H24 CNP to MYR71m (+17% YoY) was in-line - the latter at 46% of our FY24E (39% of consensus). We raise FY24-26E CNP forecasts by 10%/34%/56% as we raise our job win assumptions. Our TP is uplifted to MYR3.70 (from MYR2.30) based on revised 21x PER (updated +0.5SD of mean) on rolled forward FY25E earnings. We continue to like SCGB for its strong execution capability, but valuation is pricey at 24x FY25E PER; SELL.

Analyst:
Wong Chew Hann
wchewh@maybank-ib.com

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by Kenanga
Market Perform - TP RM4.28

"Strong Prospects but Fairly Valued"

SUNCON’s 1HFY24 result met expectations with core profit rising 11% YoY to RM64.2m on higher revenue. 2HFY24 earnings are set to be stronger as data centre projects accelerate. Its prospects remain strong underpinned by a record order backlog and promising jobs prospects from both public and private projects. We maintain our forecasts and TP of RM4.28 but cut our call to MP as it is fairly valued at 20x FY25 PER after its recent solid share price performance.

Analyst:
Teh Kian Yeong
tehky@kenanga.com.my

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by HLIB
Buy - TP RM5.60

"On the right track"

SunCon reported 1HFY24 earnings of RM66.4m meeting our expectations. Billings from its key DC project has started and is on-track to accelerate in 2H. Guidance of higher margin DC projects is manifesting in the reported numbers. Tender opportunities are robust with tender book increasing to RM13.7bn even after stripping off ~RM6bn VN power plant project. We view potential slight delays in EPC formalisation as a negligible blip. Precast segment should continue to benefit from healthy HDB demand in SG and entry into DC supply space. Maintain BUY with unchanged TP of RM5.60.

Analyst:
Edwin Woo, CFA
ckwoo@hlib.hongleong.com.my

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by CGS
Add - TP RM5.46

"Stronger 2HF from high-margin DC projects"

■ 2Q24 results met expectations; we expect a stronger 2H24F as Sedenak DC project upsizing and finalisation of end-client happened in late-2Q24.
■ We still expect upsizing for existing DC projects in 3Q24F, which could beef up its current orderbook of RM7.4bn by RM1bn-2bn.
■ Reiterate Add and SOP-derived TP of RM5.46.

Analyst:
CHONG Tjen-San, CFA
tjen-san.chong@cgsi.com

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by TA
BUY – TP RM6.15

" Awards RM416.8mn Sub-contract to JV Entity"

We reiterate our target price of RM6.15, based on a 26x CY25 EPS and 3% ESG premium given our 4-star rating. We continue to like the stock due to the following reasons:- (i) SUNCON’s strong position as a contender for mega infrastructure projects, namely MRT3, Johor ART and Penang LRT, (ii) strong earnings visibility on the back of a robust outstanding order book, and (iii) its leading position in securing more jobs in the thriving ATP industry. Maintain Buy call on the stock.

Analyst:
Raymond Ng Ing Yeow
raymondng@ta.com.my

$SUNWAY / 5211 (SUNWAY BERHAD): Benefited from the rise in $IJM / 3336 (IJM CORPORATION BERHAD) share price

The influx of data centers into Malaysia has benefited many sectors, including construction. The top three construction companies ($GAMUDA / 5398 (GAMUDA BERHAD), IJM, and $SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)) have undoubtedly profited from contracts to build data centers, leading to significant increases in their share prices.

SUNCON's share price has surged the most this year, increasing by 155%. This is followed by IJM with a 94% rise, and GAMUDA with a 79% increase. This growth has substantially boosted Tan Sri Jeffrey Cheah's net worth. In addition to SUNCON, $SUNWAY / 5211 (SUNWAY BERHAD)'s share price has also seen a significant rise, increasing by 91% this year. This is largely due to investor expectations that Sunway Healthcare might soon spin off for listing. However, it's worth noting that SUNWAY has also benefited from the increase in IJM's share price.

SUNWAY first began purchasing IJM shares in 2021. Fortuna Gembira Enterprise Sdn Bhd, controlled by publicly traded SUNWAY, accumulated a 4.95% stake in IJM, becoming its fifth-largest shareholder with 180.25 million shares. This stake increased to 5.14% due to IJM's ongoing share buy-back activities. However, in 2023, SUNWAY ceased to be a substantial shareholder of IJM after selling 2.8 million shares, reducing its stake to 4.95%. Despite this, SUNWAY still holds 173.79 million shares, and the increase in IJM's share price this year has earned SUNWAY at least RM200 million.

$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
Research by RHB
BUY – TP RM6.29

" Still Walking On Sunshine; BUY"

We remain upbeat on Sunway Construction’s growth prospects, which are backed by data centre (DC) works contracts as well as other industrial jobs such as warehouses and semiconductor manufacturing facilities. Our estimated job wins of at least MYR4bn pa backs our 3-year earnings CAGR (2023-2026) of 24%

Analyst:
Adam Bin Mohamed Rahim
adam.mohamed.rahim@rhbgroup.com